The company is a leading driving training enterprise in China. Relying on its main business advantages, it lays out “full-cycle” comprehensive automotive services and explores new business models empowered by technology. The company uses its experience and advantages in the driving training service industry to actively expand business to other sub-industries of the automobile consumer integrated service industry.

In 2021, the company pioneered the “VR+AI+practical road training” trinity smart driving training model, leading the transformation and upgrading of the driving training industry. By the end of 2021, more than 300,000 students had successfully obtained driver's licenses through smart driving training.

The market size of the driving training industry is huge, and there are many driving training companies and a scattered pattern. High-quality brand driving schools are expected to break the game and get brand premiums. China has fully entered the automobile society. The transportation structure has undergone fundamental changes, and the number of new drivers in the car driver structure has increased dramatically.

According to data from the Ministry of Public Security, by the end of November 2022, the number of drivers under 3 years of driving age reached 103 million, accounting for 20.6%; the number of underage drivers under 25 reached 54.48 million, accounting for 10.9%. Although the pandemic has affected the driving training industry market, the rigid demand for driving training has not disappeared but has been delayed. Using the Beijing market as its basic market, the company is increasing its national layout, seizing market opportunities, and building excellent brands, which is expected to achieve growth in performance. According to the company's annual report, the company's market share in Beijing in 2016-2018 was 27.40%, 29.96% and 35% respectively; during the same period, the company's market share in Kunming was 9.81%/9.18%/11.70%, respectively, and the market share in Shijiazhuang was 2.12%/3.44%/3.79% respectively.

The company pioneered the “intelligent driving training model” and the “green driving training model”, leading the development trend of the industry and forming a unique competitive advantage. The company created a smart driving training model that integrates “VR+AI+actual road training”, and achieved intelligence, scenario-based and standardized throughout the car learning process. The company and Beijing Qianjong Mirage have reached cooperation on VR car driving simulators, and have achieved intelligent driving training systems for all operating regions. As of June 2022, more than 1,000 VR simulators and nearly 1,000 smart cars have been installed in Beijing, Kunming, Yunnan, Shijiazhuang, Hebei, Jingzhou, Shandong, Zibo, and Inner Mongolia. The company continues to promote the green driving training model and expand investment in new energy vehicles. According to the company's 2022 interim report, the company has built 1,046 charging stations of its own, and the number of charging stations in the park and the scale of electricity capacity rank the highest among single stations in the country.

We believe that there is room for flexibility on the revenue side of the company, optimization on the cost side is obvious. At the same time, the business model has large operating leverage (rigidity in amortization costs), and the company's profit side performance is worth looking forward to.

1. There is room for flexibility on the revenue side: (1) post-epidemic recovery drives the recovery of driving training revenue; (2) Branded exports of high-quality driving training services, and the company's market concentration is expected to continue to increase; (3) “VR+ driving training” exports new business models (driving schools outside Beijing export brands and VR content, “heavy assets” become “asset light”, “competitors” become “cooperation and win-win”) 2. Major optimization on the cost side: (1) Significant improvement in “human efficiency ratio”: 20 hours of VR teaching, 8-12 hours of AI training, “3 people and 2 cars” “1 person, 6 cars”, significantly reduces labor costs; (2) significantly reduces fuel consumption Cost: The company promotes the transformation of fuel vehicles to new energy vehicles. According to Wall Street news calculation, the fuel consumption of 0.71-0.92 yuan per kilometer is expected to be drastically reduced to 0.22-0.24 yuan per kilometer of electricity consumption per kilometer.

3. Have core assets (fixed assets) and have operating leverage.

Investment advice

The company has been deeply involved in the industry for 28 years, growing from “the last driving school established in Beijing” to the number one driving training organization in Beijing, with a regional share of over 30%. At the same time, it is vigorously building an intelligent driving training system, exploring new directions for the development of the industry, and taking the lead in achieving branding and intelligent transformation. The revenue side of companies affected by the epidemic is clearly under pressure. With the optimization and adjustment of epidemic prevention and control measures, the company's performance is expected to rebound. We expect the company to achieve net profit of -36 million yuan (yoy -123.5%), 203 million yuan (yoy +667.8%), and 265 million yuan (yoy +30.3%) in 2022-2024. The corresponding EPS is -0.05 yuan, 0.28 yuan, and 0.37 yuan respectively. The corresponding valuation of the current stock price is 148 times, 26 times, 20 times, covering the “buy” rating for the first time.

Risk warning

The risk of repeated epidemics, the risk of macroeconomic fluctuations, the risk of increased competition in the industry, the risk that the expansion of the national market falls short of expectations, the risk that the development of the intelligent driving training business falls short of expectations, and the risk of changes in driving training policies.