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Conversion headwind hurts results

■ Huali reported FY8/21 revenue of Rmb882m, up 15.8% yoy, and adjusted net profit of Rmb299m, down 11.4% yoy, below our expectations because of lower margins.
■ The number of new intake students decreased by 2.8%, 29.6% and 8.0%, respectively, for Huali College, Huali Vocational College and Huali Technician College in the 21/22 school year because of intensified competition at the junior college and technical school level and some regulatory limitations.
■ We expect competition at the junior college and technical school levels to continue in the near future and the Huali Vocational College upgrade to take some time.
■ Downgrade to Hold with a new DCF-based TP of HK$1.37.

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