The business transformation has basically been completed. Waiting for new businesses such as school operation services and vocational education to develop, Kevin Education achieved revenue of 172 million yuan (YOY -39.57%) in '22, and Guimu's net loss was 96.59 million yuan (a year-on-year decrease of 19.92%), in line with the performance forecast. In 23Q1, the company achieved revenue of 68.23 million yuan (YOY +551%, QOQ +22%), and its mother had a net loss of 10.61 million yuan. Considering that the company has basically completed the transformation, the scale of new businesses such as school operation services and vocational education is expected to expand further in 23, and quality education is expected to usher in restorative growth after the epidemic. We expect the company's 23-25 revenue to be 3.49/4.24/505 billion yuan, BPS is 3.77/3.85/3.97 yuan. Referring to the company's average 23E 0.87 times PB, considering that the company's school operation business is more stable than comparable companies that focus on property management, and the growth potential of new vocational education businesses is 1.2 times 23E PB, target price 4.52 yuan (previous value: 3.80 yuan), maintaining the “hold” rating.

The scale of school operation services may expand. Quality education is expected to rehabilitate growth. The company completed the organizer changes for the two Kevin schools in early '22, and instead provides operation services for the two schools. Among them, Chaoyang Kevin School plans to officially open a regular high school in the 23-24 academic year. The company will provide them with the teachers to establish a leading academic system and provide high-quality supporting hardware facilities for teaching; the company signed a cooperation agreement with Bohua Bilingual School in Fengxian District of Shanghai to export many years of rich educational operation and management experience in the K12 field to the outside world using an asset-light model. We expect revenue from school operating services to rise steadily in 23-25 as the number of students grows. Furthermore, the company further enriched the quality education sector with arts and sports characteristics through the operation of Xishan Ski Resort in Beijing in '22, and as offline teaching returns to normal, demand for camp education may heat up, so we expect a restorative increase in quality education revenue in '23.

The expansion of vocational education has progressed steadily. A number of integrated industry-education project companies have signed contracts with industry-leading enterprises including Baidu, Tencent, and Xinmeier (Beijing) Technology Co., Ltd. through its subsidiary Haike Vocational Education. As of 22, they had cooperated with six institutions in Shandong, Sichuan, Henan, Hunan, Inner Mongolia and other places to establish industrial colleges, covering undergraduate, senior and middle school students. The total number of students enrolled exceeded 1,500. In 2023, the company will continue to develop vocational education business and establish cooperation with more partners in the industry chain. According to the signing of new cooperation agreements on the company's public account, we expect the number of partner institutions to increase to 10 in 23. We believe that the industry-education integrated business model described above has the characteristics of being asset-light, replicable, and expandable, and is expected to become a new revenue growth point in the future.

The target price is 4.52 yuan, maintaining the “hold” rating

We expect BPS to be 3.77/3.85/3.97 yuan in 23-25. Referring to a comparable company's 23E average of 0.87 times PB, considering that the company's school operation business is more stable than comparable companies that mainly focus on property management, and the growth potential of the new vocational education business, 1.2 times 23 PB was given, with a target price of 4.52 yuan (previous value: 3.80 yuan), maintaining the “holding” rating.

Risk warning: The number of students enrolled in vocational education fell short of expectations; offline teaching activities were blocked due to repeated epidemics; there was a shortage or risk of loss of teachers and core management personnel; real estate rental rates fell short of expectations.