The interim report turned a loss into a profit and looked forward to the implementation of policy dividends

The company published its 2020 semi-annual report. Revenue of 202 million yuan was achieved in the first half of 2020, compared to 557 million yuan in the same period last year, YoY -63.66%; realized net profit of 32 million yuan, compared to -17 million yuan in the same period last year; net profit returned to the mother after deduction was 2,4650 million yuan, YoY -79.4%. Non-recurring profit and loss mainly includes investment income of 25.41 million yuan from the sale of two chemical subsidiaries. The decline in revenue in the first half of the year and net profit after deduction was mainly due to the sale of chemical assets and the impact of the epidemic. We believe that with the full resumption of classes in the second half of the year, policy dividends such as the construction of “three classrooms” are expected to be gradually implemented, and the company's performance is expected to improve significantly. The company's EPS is expected to be 0.59/0.73/0.87 yuan in 2020-22, maintaining the “increase in holdings” rating.

The divestment of the chemical business was completed, and the proportion of the education business increased

The year-on-year decline in revenue in the first half of 2020 was mainly due to the completion of the transfer of Changshu New Materials and New Materials Sales Company, which was no longer included in the scope of the merger since March. Furthermore, the company's education business was greatly affected by the epidemic in the first quarter, and the decline in education business revenue narrowed month by month after full resumption of work in April. In the first half of the year, Oveia achieved revenue of 87.56 million yuan, YoY -14%; achieved net profit of 24.1 million yuan; achieved net profit of 23.15 million yuan after deduction, YoY -9%. The gross margin of listed companies in the first half of 2020 was 38.34%, YOY+18.39pct; the fee ratio for the period was 44.06%, YOY+25.85pct. The increase in gross margin and period expenses ratio is mainly due to an increase in the share of revenue from the education business. On May 8, the stock abbreviation of the listed company was officially changed to “Guoxin Culture”.

Major orders have been signed in a row to benefit from the implementation of the “Three Classrooms” construction

The interim report revealed that in January 2020, the company signed a 158 million yuan education informatization project contract with China Mobile Construction Henan Branch for a three-year term; in May, the company signed a procurement contract of 28.58 million yuan for the “Internet+Education” quality balance project with the Education and Sports Bureau of Weihui City, Henan Province, for a three-year contract. In the first half of the year, Oveia signed a total of 717 sales contracts, totaling 107 million yuan. We believe that with the gradual implementation of education informatization 2.0 and the “three classrooms” construction, the company's normalized recording and broadcasting products are expected to meet greater market demand, which is beneficial to the subsequent order situation. The epidemic in the first half of the year affected the implementation progress of the “Three Classrooms” to a certain extent. We believe that with the full resumption of classes in the second half of the year, the construction of the “Three Classrooms” is expected to accelerate, and the company's performance is expected to improve significantly.

Benefiting from the informatization of education 2.0 and “three classrooms” and maintaining the “increase in holdings” rating, we maintain the company's profit forecast. The net profit returned to the mother in 2020-22 is estimated to be 2.63/324/391 million yuan; EPS is 0.59/0.73/0.87 yuan. Chemical industry contributes 21 million yuan in profits every year. Comparable to education companies, the average PE in 21 years was 24 times. Considering that the new education informatization policy will make recording and broadcasting more popular in the next three years than other segments, the company's education business was given 27 times PE in 21 years, corresponding to a market value of 8.181 billion yuan. Comparable chemical companies reported an average of 1.7 times PB in 2019, and the chemical division predicted net assets of 232 million yuan in 2020, giving the chemical industry 1.7 times PB of net assets, corresponding to a market value of 394 million yuan. The corresponding listed company has a reasonable market value of 8.575 billion yuan and a corresponding target price of 19.19 yuan, maintaining the “increase in holdings” rating.

Risk warning: Uncertain risk of implementation of education informatization policies, risk of epidemic risk, risk of market competition, risk of environmental supervision, risk of impairment of goodwill, risk of mergers and acquisitions integration.