FY2022H1 performance overview: as of February 28, 2022, the company achieved revenue of 1.204 billion yuan, an increase of 4.8% over the same period last year; net profit of 542 million yuan, down 36.1% from the same period last year; and adjusted net profit of 576 million yuan, down 7.3% from the same period last year, without paying interim dividends. For example, according to FY21H1's performance announcement that grades 1-9 are not excluded, the company's revenue is down 12% from a year earlier, and its home net profit is down 17% from the same period last year. The decline in profits is mainly due to the company's increased investment in teaching staff, campus facilities and teaching, resulting in a sharp decline in the company's gross profit margin.
Increase investment in running schools, gross profit margin has declined significantly: the company responded positively to the "opinions on promoting the High-quality Development of Modern Vocational Education" issued in October 2021, in the first half of fiscal year 22, the company expanded its investment in teaching staff, campus expansion and renovation, curriculum development, student activities, etc., in order to further improve the quality of teaching and enhance students' learning experience. The cost of the main business increased rapidly to 520 million yuan, an increase of 38.5% over the same period last year. Among them, the larger increases are as follows:
The salary cost of employees was 294 million yuan, an increase of 16.1% over the same period last year, mainly due to the fact that the company raised the average salary level of employees, with 6846 employees, a decrease of 119,119 over the same period last year. The expenditure on student training and scholarship was 75.56 million yuan, an increase of 23.5% over the same period last year. Office expenditure was 48.87 million yuan, an increase of 90% over the same period last year. The expenditure on school consumables was 27 million yuan, an increase of 73% over the same period last year. Rising costs caused the company's gross margin to fall 12% year-on-year to 682 million yuan and gross profit margin to 58.4% (- 1110bps).
Promote the conversion of existing schools and consolidate steady endogenous growth: at present, the company is actively promoting the transformation of three K12 schools in Zhengzhou, Jiaozuo and Luohe into higher vocational colleges, and the relevant licenses are under examination and approval. Zhengzhou schools are optimistically expected to complete the transformation and put into operation by the autumn of 2022. The other two schools will be converted and put into operation by the autumn of 2023. The company will increase investment in the existing three universities and offer vocational undergraduate education. Through the upgrading of new higher vocational colleges and the establishment of vocational undergraduate majors, the scale of running a school will be expanded. In addition, the company is actively preparing for land-related matters on the new campus of Hunan Institute of Foreign Economics to ensure that the endogenous growth of Hunan University of Foreign Economics is not restricted by land.
Target price of 2.2 Hong Kong dollars, maintain buy rating: at present, the company's stock price is volatile, the valuation of the primary and secondary market is upside down, it is not suitable to continue financing for large-scale epitaxial mergers and acquisitions, it is expected that the future will be dominated by endogenous growth, revenue growth will slow down. In addition, we expect its investment in running a school to further increase and its gross profit margin to decline slightly. Considering the slowdown in the company's profit growth in the future, we have lowered the company's profit forecast for the fiscal year 22-23-24 to 1.308 billion yuan, and adjusted the company's target price of HK $2.2b, corresponding to the 5.7x and 5.4x of PE forecast for fiscal year 22Universe 23, which is still 91.3% higher than yesterday's closing price.