Overview of FY2021H1 performance: for the half year ended February 31, 2020, the company realized income of 761 million yuan, up 13.1% from the same period last year; gross profit of 239 million yuan, up 5.9% from the same period last year; gross profit of 57.45 yuan, down 370BPS from the same period last year; adjusted net profit of 156 million yuan, down 2.9% from the same period last year; earnings per share of 0.116 yuan without interim dividend. The main reason for the decline of gross profit margin is the increase in costs caused by the improvement of teachers' salaries, training equipment, accommodation and so on.

The growth in the number of students is in line with expectations, and the utilization rate of Yunfu campus has climbed significantly: as of February 31, 2020, the total number of students in the company's three schools was 48900, an overall year-on-year increase of 7.3%. Separately, there are 18300 students from Huali College (YOY/+3.13%), 20800 students from Huali Vocational College (YOY/+4.92%), and 9900 students from Huali technician College (YOY/+22.3%). In terms of enrollment for new students in the 20x21 academic year, Huali College / Huali Vocational College / Huali technician College enrolled 4856 students, compared with the same period last year. The number of students admitted by Huali College / Huali Vocational College / Huali technician College was-23.1%, 27.2% and 62.1%, respectively. In terms of per capita dormitory fees, 2021H1 Huali College / Huali Vocational College / Huali technician College increased by 7.5%, respectively, compared with the same period last year. From the perspective of campus utilization, Zengcheng campus has tended to be saturated to 93.8%, year-on-year + 80BPS, Yunfu campus utilization has significantly improved, has reached 66.7%, an increase of 422BPS.

The land reserve of the company is sufficient, and the endogenous growth is guaranteed: as of February 28, 2020, the group owns 2675 mu of land, with a total construction area of about 1.092 million square meters (including projects under construction). At present, the expansion project of Zengcheng campus will be completed by the end of August 2021. The first phase of Jiangmen campus project is expected to be put into use in September 2022. The group currently has sufficient land reserves and still has a lot of room for expansion. It is expected that it will increase to 3135 mu by the end of 21, and the maximum capacity in the future will reach 100000. Based on the current 48900 students, there is still about twice as much room for growth. The company's sufficient land reserves and the construction of new and old campuses have ensured the company's long-term stable endogenous growth. In addition, the company said that it will seize the window period of the conversion of independent colleges and actively promote the landing of extension M & A projects. Special attention should be paid to areas with developed economy, large population base and low gross enrollment rate.

The target price is HK $5.00 and the buy rating is maintained: the decoupling work of Huali College is being actively promoted. At present, the transfer agreement has been signed and the expert review has been completed, and the decoupling is expected to be completed within the first half of the year. The company expects to pay a total of 160 million RMB for decoupling transfer in three installments. If the decoupling is successful, the brand management fee is expected to be reduced by 34 million yuan in the 22nd school year, which will increase every year thereafter, and will no longer pay the brand management fee in the 26th academic year. Directly improve the profitability of the company. Maintain the company's target price to HK $5.00, with a forecast PE of 14.9x and 10.9x for 2021 and 2022, respectively, up 116.5 per cent from the recent closing price.