The performance of the first half of 20 years was influenced by COVID-19

The training announced its results for the first half of the year, with sales / profits falling by 1.9% / 86.3% respectively. Adjusted operating profit and net profit were HK $25 million / HK $16 million, down 56% / 68.1% year-on-year, excluding inventory, property and equipment write-off. the adjusted net profit was about 23.8% lower than our estimate of HK $21 million. Sales fell due to delayed shipments in the second quarter of 20 and mixed gross margins narrowed 9.7 percentage points to 23.8 per cent, as demand shifted to synthetic products (estimated to account for 58 per cent of sales, 45.7 per cent in the first half of 1919) and hair salons were closed during the COVID-19 blockade. The key point is the strong recovery of orders, the sales contribution of synthetic products is expected to maintain more than 55% in 20 years, and the full operation of the new bleaching and dyeing complex is expected to be delayed.

Strong recovery of orders and prospects:

We estimate that overall sales growth in 20 years will increase by 7% due to the 17% year-on-year increase in orders from July to November 20 and the fullness of orders to November 20.

We estimate that the mixed gross profit margin will reach 26% / 30.3% in 2021, while the synthetic hair products will reach 56.6% / 55.0% in 20 / 21 (estimated to be 58% / 46.6% in the first half of 20 / 19 respectively) because management has not seen a reversal in sales of human hair products before December 20.

At present, the utilization rate of the bleaching and dyeing complex is about 40%, and it is expected that full operation will be postponed from the fourth quarter of 20 to the first half of 21.

Planned capital expenditure of about HK $15 million in the second half of the year will be used for office and plant renovation to maintain a "long position" investment rating for training and repair industries, with a target price of HK$1.75 based on 11.0 times 21-year forecast price-to-earnings ratio.

Although the demand after COVID-19 has shifted to synthetic hair products, we reiterate that the argument for upgrading human hair products for African-American women remains unchanged. We have raised our annual forecast revenue for 20-21-22 to HK $830 million / HK $1.053 billion / HK $1.266 billion due to the resumption of orders and profits for post-COVID-19 synthetic products to HK $46 million / HK $115 million / 154 million respectively to reflect the lower gross profit margin. We maintain our long position rating and target price HK$1.75, which means 10.0% room for increase.