Events: In the first half of 2020, the company achieved operating income of 98.12 million yuan, a year-on-year decrease of 93%; net loss attributable to the parent company of 306 million yuan, a year-on-year decrease of 277%; net loss after deducting non-recurring profit and loss of 360 million yuan, a year-on-year decrease of 373%.

The closure of cinemas led to a loss in the company's performance. Affected by the COVID-19 pandemic, all of the company's cinemas have been completely closed since January 24. There is no box office revenue, and the sales and advertising business has also been suspended. However, costs such as employee remuneration, rent and property fees, and depreciation were rigid, leading to a loss in the company's performance in the first half of the year. In the first half of the year, the movie screening business revenue was 61.58 million yuan, down 94% year on year, accounting for 63% of total revenue; sales business was 10.31 million yuan, down 28.8% year on year; and advertising business was 11.25 million yuan, down 89.2% year on year.

There has been a net increase in the number of screens, and the expansion of cities below the third tier continues. In the first half of the year, the company's box office was 76.19 million yuan, a year-on-year decrease of 93.8%. Among them, asset-linked cinemas had box office revenue of 63.44 million yuan, with a market share of 3.04%; franchise cinemas had box office revenue of 12.76 million yuan, with a market share of 0.61%. As of the end of June, the company owned a total of 459 cinemas that had opened, a net increase of 8 theaters compared to the end of 19; the screen was 2,833 yuan, a net increase of 527 screens compared to the end of 19. Currently, 70% of the 376 directly-managed cinemas are distributed in cities below the third tier, and the company continues to be optimistic about the box-office growth space of lower-tier cities.

The resumption of work in cinemas continues to improve. As of August 28, Cat's Eye data showed that a total of 9,436 cinemas across the country had resumed work, with a resumption rate of 83.16%. From the resumption of work on July 20 to August 28, the national box office revenue was 3,022 billion yuan, recovering to about 30% of the same period last year. Blockbusters such as “Winning the Championship,” “My Hometown and Me,” and “Jiang Ziya” will be screened during the National Day. We expect a major breakthrough in the National Day box office revenue.

Profit forecasting and investment advice: The pandemic has accelerated the supply and exit process. Leaders are more able to withstand risks and start mergers and acquisitions. Market share is expected to increase. We expect the company to lose 203 million yuan in net profit in 2020, a reduction of about 100 million yuan compared to the first half of the year; net profit for 2021/22 was 473/576 million yuan, respectively, which sharply turned the loss into a profit/increase of 21.8% over the previous year. Maintain the buy rating.