The new higher education group reported revenue of 1.92 billion yuan in fiscal year 22, an increase of 28% over the same period last year, and adjusted net profit of 661 million yuan, an increase of 16.4% over the same period last year. Both revenue and profit growth are in line with our previous expectations. We believe that the increase in company revenue is mainly due to the increase in group tuition and accommodation fees and the consolidation of newly acquired institutions (Lanzhou school and Zhengzhou school). The increase in adjusted profits is mainly due to the company's acquisition of 10% minority shareholders in Heilongjiang School. In addition, endogenous growth contributes about 16% of revenue, while the rest is contributed by epitaxial mergers and acquisitions. At the same time, New higher Education announced that it would pay a final dividend of 0.093 yuan per share, with an annual dividend of 0.199 yuan, with a dividend rate of 50%. The annual dividend yield reached 8.4%, supplemented by extension, and income increased steadily. The number of students enrolled in the New higher Education Group in the 22nd academic year benefited from the increase in the number of junior college students brought about by the 3 million enrollment expansion of higher vocational education in the past three years, reaching 144000, an increase of 22% over the same period last year. At the same time, driven by the strategy of high quality and high price, combined with an average employment rate of over 98%, excellent word-of-mouth helped the average tuition fee increase by 5% compared with the same period last year. The extension still plays a role in FY22, with the Zhengzhou school acquired by the company in 2021 completed in September 21, and the self-built Lanzhou school in April 2001, thus contributing to the number of students and income growth in FY22. In the 22At 23 academic year, due to the company's optimization of the structure of the number of students, the number of students decreased by 2.3% compared with the same period last year, but the number of undergraduate students exceeded 51000, accounting for 36%, an increase of about 6 percentage points over the same period last year. The undergraduate level has a higher fee standard than the junior college level, so we expect the company's average tuition fee to increase by 11% in fiscal year 23, and the group's fiscal year 23 revenue is expected to rise to 2.087 billion yuan, an increase of 8.6% over the same period last year.

The high-quality strategy continues, the training business expands rapidly and the profit margin is bottomed out. In fiscal year 22, the gross profit margin of the New higher Education Group was 39%, down 5.6 percentage points from the same period last year; the net profit margin was 34.4%, down 3.5 percentage points from the same period last year, and 1.1 percentage points higher than the previous year. We believe that the decline in profit margins is mainly due to the group's continued improvement in the quality of teaching, the building of a team of teachers and the increase in the cost of hardware input in colleges and universities, and the main cost increased by 41% year-on-year, exceeding the increase in income. In addition, as the group stepped up the promotion of new media brands in fiscal year 22, sales expenses increased by 42% to 28.7 million yuan compared with the same period last year. With the ability of collectivization to run a school, the company's administrative expenses accounted for a further decline in revenue, to 4.6% (down 1 percentage point from the same period last year). In addition, on the basis of high-quality schools, the company has expanded the business of non-academic vocational training. The service revenue in fiscal year 22 is 142 million yuan, an increase of 22% over the same period last year. We believe that vocational training business is expected to become a new momentum for the development of the company in the future. As a result, other income and gains of the group reached 3.83 million yuan and 458,548 million yuan respectively in the fiscal year of 23-24-25. Looking to the future, we believe that with the gradual completion of the core construction of the group, the decline of hardware investment, the growth of main costs will slow down, the superimposed non-academic vocational training business will grow rapidly, and the profit margin will be repaired.

Keep buying. Thanks to the high-quality school-running strategy of the New higher Education Group, we believe that the company's average tuition fees are expected to maintain a compound annual growth rate of 6.4% in fiscal year 22-25. At the same time, relying on the development of vocational training business will also lead to a steady increase in profit margins, which is expected to reach 42% in fiscal year 25. Due to the slowdown in the growth of the size of students, we have reduced the group's homing profit for fiscal 24 to 781 million yuan and 915 million yuan, and the net profit for the new 25 fiscal year is expected to be 1.035 billion yuan. We lowered our target price to HK $3.09, corresponding to 31% room for growth, and maintained our buy rating.

Risk hint: the development of vocational training business is not as expected; the price increase of tuition is not as expected.