The company's education business in the first half of 2022 was continuously affected by the local epidemic, and growth fell short of expectations. The company continues to promote the implementation of education projects, accelerate alternative research and development work, and enrich the education informatization product line. Considering the slowdown in the implementation of education informatization projects, the company's 2022-2024 EPS forecast was lowered to 0.26/0.35/0.43 yuan (the original forecast was 0.45/0.62/0.70 yuan). Referring to industry-comparable companies in 2023 (Shiyuan Co., Ltd. and Chuanzhi Education Wind agreed to expect PE 16 times and 32 times, respectively), the company was given a 2023 valuation of 23 times PE, corresponding to a target price of 8 yuan, downgraded to the “increase” rating.
Due to the impact of the pandemic, income declined year-on-year. 1) Revenue and profit: In the first half of 2022, the company achieved revenue of 109 million yuan/ -25.68%, net profit of 1.58 million yuan/ +11.81%, after deducting non-net profit of 10.2 million yuan/ +6.91%.
The decline in revenue was mainly due to a decline in product sales affected by the local epidemic, a slowdown in the implementation of education informatization projects, and a decrease in project revenue; the year-on-year correction of profit growth was mainly due to a decrease in costs and expenses. 2) Gross profit and expenses:
The company's gross margin for the first half of 2022 was 76.82% /+16.81 pcts. The gross margin of the company's education business continued to increase, exceeding the gross margin level of the education business for the full year of 2020 (72.29%). Sales/management/R&D expenses for the first half of 2022 were 0.35/0.25/41 million yuan respectively, compared with -16.11%/-14.31%/+7.58%, respectively, due to a year-on-year decrease in advertising and exhibition expenses, a year-on-year reduction in labor costs and depreciation expenses, and an increase in R&D investment.
The growth of the education business fell short of expectations. The revenue/profit of Oveia, a wholly-owned subsidiary of the company, was 1.10/119 million yuan in the first half of 2022, a year-on-year decrease of 8.87%/19.37%. Huasheng Jingshi, which holds 27% of the company's shares, has revenue/profit of 0.89/10 million yuan in the first half of the year, a year-on-year decrease of 33.73%/48.49%. The main reason is that the education service business no longer enjoyed the income tax exemption policy in the first half of 2022, and at the same time, there were few system integration business reviews.
1) Listed company headquarters: Actively promote the implementation of education projects and create a platform for incubation of new products. The company actively promoted the implementation of the Lichuan Education Support Phase II Project and the Hebei National Normal University Industry-Education Integration Project, using the Tibet Agricultural Bank Project to enter financial vertical system customers; formally signed a strategic cooperation agreement with iFLYTEK, continued to cultivate three classroom businesses, and developed new businesses such as interactive tablets through its subsidiary Beijing Guowenxinsi Smart Technology Co., Ltd., and gradually built it into a new business incubation platform and industrial cooperation platform for Guoxin culture. 2) Oveia: AI applications enable product upgrades and improve product replacement R&D optimization. In May 2022, AI technology was commercialized, new smart cloud eye products were launched, and the education information technology product line continued to be enriched. New products such as digital array microphones, sensorless amplification microphones, large infrared touch screens, capacitive smart blackboards, and fully connected smart teaching platforms based on group schools were launched. At the same time, it focused on optimizing the functions of replaced products and speeding up the development of quality recording and broadcasting alternatives. Iterative optimization of various products has been completed.
Risk factors: Order volume declined due to repeated local epidemics; prices of major raw materials rose sharply; company business collaboration fell short of expectations; recovery in terminal demand fell short of expectations.
Profit forecasts, valuations and ratings: In the first half of 2022, the company's education business was continuously affected by the local pandemic, and growth fell short of expectations. The company continues to promote the implementation of education projects, accelerate alternative research and development work, and enrich the education informatization product line. Considering the slowdown in the implementation of education informatization projects, the company's 2022-2024 EPS forecast was lowered to 0.26/0.35/0.43 yuan (the original forecast was 0.45/0.62/0.70 yuan). Referring to industry-comparable companies in 2023 (Shiyuan Co., Ltd. and Chuanzhi Education Wind agreed to expect PE 16 times and 32 times, respectively), the company was given a 2023 valuation of 23 times PE, corresponding to a target price of 8 yuan, downgraded to the “increase” rating.