The company's 1H22 achieved revenue/adjusted net profit of 744/232 million yuan, +24.4%/+89.5% year on year. Among them, the company's higher education business maintained rapid growth of 23.4%, and the asset-light education resource export business increased 115.9% year-on-year. We are optimistic that the company's high-quality school assets will continue to grow steadily and that the asset-light business will provide higher performance flexibility and maintain the “buy” rating.
The increase in performance was impressive, with adjusted net profit +89.5% year-on-year. 1) Revenue and profit: 1H22 achieved revenue of 744 million yuan/ +24.4%, net profit of 233 million yuan/ +114.7%, and adjusted net profit of 232 million yuan/ +89.5%. The adjusted net profit margin increased by 7.4 pcts to 31.2%. 2) Costs and expenses: The company's gross margin increased by 3.9 pcts to 47.0% year-on-year, mainly due to the rapid growth of the asset-light business. The sales/management/R&D expenses ratio remained stable and slightly optimized, respectively 2.5%/9.6%/3.1%, respectively, compared to -0.2/-1.9/-0.6pcts. 3) Cash and liabilities: 1H22 capital expenditure was $305 million due to investment in campus expansion, resulting in a decrease of $346 million to $883 million in cash and cash equivalents at the end of the period. As of 1H22, the company's short-term loans were 478 million yuan and long-term loans were 2.05 billion yuan.
Higher education: The number of students enrolled in higher education increased significantly, and capacity expansion supported subsequent growth. 1H22's higher education business revenue reached 580 million yuan/+23.4%, of which tuition fees/accommodation fees/telecommunication equipment rental revenue was 5.3/0.48/102 million yuan respectively, +23.9%/+14.8%/-4.5% year on year. The number of students enrolled in the first half of the year increased 16.4% year on year to 45,492. By school, the number of students enrolled in Dalian/Chengdu/Guangdong schools was 16866/16162/12464 respectively, +9.1%/+23.9%/+17.8% over the same period last year. Looking ahead: The total enrollment quota for the 2022/23 academic year was 1,7128 students/ +6.1%. By degree, the number of undergraduate, college/college students enrolled was 11822/846/4460, respectively. Over the same period of +5.6%/-61.5%/+154.7%, there was a significant increase in the number of college students enrolled. In terms of tuition fees, the tuition fees for the 2022/23 academic year in colleges around the world remained at the 2021/22 level. The tuition fees for undergraduate/college/college students in Dalian were 2.8-3.4/2.8/28,000 yuan respectively, and the tuition fees for undergraduate/college/college students in Chengdu were 1.8-2/1.8-1.9/18/19,000 yuan respectively. The tuition fees for undergraduate and junior college students at Guangdong University are 28-32,000 yuan.
In terms of capacity, the three 1H22 schools added a total of 7084 to 58,000 beds, of which Dalian/Chengdu/Guangdong University added 2082/1018/3984 respectively. With the increase in tuition, we are optimistic that the company's higher education business will continue to grow rapidly.
Asset light: Exports of educational resources have doubled, and continuous innovation drives development. 1) Continuing education and training business: 1H22's continuing education service business achieved revenue of 66 million yuan/+13.5%. Among them, the income from continuing education was 38 million yuan/+5.6%, and the number of students enrolled was -0.9% to 1,083 compared with the same period last year.
Revenue from 2C short-term training increased 46.7% year-on-year to $22 million, enrolling 7,570 students/ +31.8%. Revenue from the 2B training business was -28.6% to 0.05 million yuan year-on-year. A total of 39 projects/+5 projects were carried out in the first half of the year, covering 2,315 participants; 2) Education resource export and digital workshop business: 1H22 digital workshop achieved revenue of 28 million yuan/-24.6%, and the education resources business achieved revenue of 69 million yuan/+115.9%. Among them, the revenue from professional joint construction business reached 36 million yuan/+80%, 65 partner institutions, and more than 250 projects, covering 17,960 students/ +35.1%. The revenue of smart education platforms and experimental training room solutions reached 29 million, +264.3% year on year. The company signed professional co-construction cooperation agreements with 8 new colleges in the first half of the year (cooperation will begin in the new school year). Additionally, the company upgraded 3 smart platform products and developed 2 new laboratory products (medical imaging training room and smart surveillance training room). We expect to officially release them in the second half of the year.
Risk factors: risks such as changes in industry policies; the company's Putian project construction falling short of expectations; the company's tuition fee increases falling short of expectations; the company's enrollment falls short of expectations and asset light business development falls short of expectations.
Investment advice: Considering the rapid growth of the company's asset-light business and the continuous introduction of new products, we raised the company's core EPS forecast for 2022-24 to 0.60/0.76/0.94 yuan (the original forecast was 0.55/0.70/0.88 yuan). Combined with comparable valuations in the higher education industry (China Education Holdings 8xPE, Huaxia Video and Video 6XPE, Wind's consistent expectations), we gave the company 7 times PE in 2022, corresponding to the company's target price of HK$5, maintaining the “buy” rating.