1H20 adj. NP fell 28% affected by COVID-19. Given that all schools havereopened in June, individualized tutoring revenue +29% in July (vs -21% in 1H20)while small group revenue growth was flat (vs -9% in 1H20). We lowered FY20-22E adj. NP by 11-15% and cut TP from HK$5.14 to HK$4.44, still at 18.7xaverage FY20E and FY21E EPS. Maintain Buy.
　　1H20 results affected by COVID-19. NP fell 28% to RMB55mn. Adj. NP fell16% to RMB64mn. Revenue decreased 11% led by 13% drop of tutoringhours. Small group tutoring revenue fell 9% as offline to online conversionrate was 85%. Individualized tutoring revenue declined 21% becauseparents delayed consumption of tutor hours until reopening of schools. GPMnarrowed by 5.8ppt to 35.6%. Adj. NPM only narrowed 0.4ppt to 8.3%because the operating deleverage was partly offset by 180% increase in FVgain of investments.
　　Individualized tutoring led the recovery. After all schools reopened inJune, more than 90% of students returned to offline courses. Individualizedtutoring revenue jumped 29% in July because students came back for offlinecourses. On the other hand, small group revenue growth was flat in Julybecause the number of student enrollments is still at recovering stage. Wethink the recovery would be a gradual process.
　　Introduced promotions to attract students. The Company introducedSummer One Program targeting different markets. Number of students inregions outside Guangzhou grew 52% YoY. This should help recoveringstudent growth post COVID-19. Management expects a steady summerclass conversion rate this year.
　　Expansion through M&A and opening new schools. As at 30 June, theCompany had RMB1.2bn net cash (including equity and debt investments).
　　The Company looks to cherry-pick targets with synergies such as operatingin uncovered regions and having special curriculum features. For newschools, the Company maintains target to add 20 in 2H20E and 40-50 inFY21E.
　　Maintain Buy. We lowered our FY20/21/22E adj. NP estimates by11%/15%/15% Our TP is revised from HK$5.14 to HK$4.44, still at 18.7xaverage FY20E and FY21E EPS. Catalysts: (1) better-than-expected studentenrollment; (2) M&A. Risks: (1) 2H20E recovery weaker-than-expected; (2)government policies.