Incidents: The company released its 2022 annual report and 2023 quarterly report. In 2022, the company achieved revenue of 171.8 million yuan, a year-on-year decrease of 39.57%; Guimu's net profit of 96.59 million yuan, an increase of 19.92% over the previous year; the company achieved operating income of 68.23 million yuan in the first quarter of 2023, an increase of 550.92% over the previous year; Guimu's net profit - 10.61 million yuan, an increase of 72.20% over the previous year.

Standards help compliant operations, and quality education is developing rapidly. After the implementing regulations of the Public Promotion Law were promulgated, the company achieved compliant operation through a combination of organizer change+operation service to guarantee the teaching characteristics and quality of the two schools. Through investment in hardware facilities, teaching staff, teaching systems, special courses, etc., the company obtained various income such as rent income, brand usage fees, education consulting service fees, quality course service fees, and catering. Looking at quarterly revenue, the first quarter of 2022 to the first quarter of 2023 achieved operating revenue of 10.48 million yuan, 49.28 million yuan, 56.12 million yuan, 55.91 million yuan, and 68.23 million yuan respectively. Overall revenue showed a quarterly upward trend. In 2023, the company will open a high-quality high school at Kevin Chaoyang School. It is expected that the number of students enrolled will grow steadily, and operating income will expand accordingly. The company vigorously developed quality education and established a comprehensive quality training system led by sports, art and technology education. Chaoyang Kevin School offered international art classes (KAP) and international music classes (KMP). In 2022, the company perfected snow and ice sports education resources. Kevin Sports began operating Xishan Ski Resort, which enriched the company's snow and ice sports hardware facilities and enhanced the company's snow and ice sports training advantages. At the same time, the company actively expanded the boundaries of quality quality education business from within the school to outside the school, promoted sports, art and technology training with Kevin's characteristics to the community, and provided a complete K12 level system camp education. The company's quality education developed rapidly.

Profitability continues to increase, and depreciation and amortization are dragging down performance. The company's gross margin increased significantly in 2022, with an overall gross profit margin of 14.35%, an increase of 14.93 percentage points; among them, the gross profit margin of the education service business was 18.53%, an increase of 19.18 percentage points; the education and training business was 1.14%, a decrease of 8.41 percentage points. In the first quarter of 2023, the company's overall gross margin increased again to 20.49%, an increase of 6.14 percentage points over 2022, and the company's profitability showed a continuous improvement trend. The company invested in the construction of Kevin Chaoyang School using an asset-heavy model. Fixed assets, holding properties, and long-term amortized expenses were high, and depreciation, amortization, and financial expenses dragged down the company's performance. By the end of January 2023, the company's net fixed assets were 144.63 million yuan, investment real estate was 1787.82 million yuan, long-term amortized expenses were 253.67 million yuan, the total depreciation+amortization of the company in 2022 was 89.82 million yuan, and financial expenses were 5933 million yuan. The total of these two reached 149.15 million yuan, far lower than the company's losses. In recent years, the company has gradually reduced its interest-bearing liabilities. The corporate bank loan balance decreased by 250 million yuan at the end of 2022, and the corporate bank loan balance decreased by 25 million yuan at the end of the first quarter of 2023. Financial expenses are expected to decline as the loan balance decreases. At the same time, with the expansion of the number of students enrolled and the development of the company's new business, the increase in operating income is expected to reduce the impact of depreciation and amortization, and the company is expected to reach an operating inflection point in 1-2 years.

The asset structure is excellent, and the operating cash flow is excellent. The company's assets are mainly composed of monetary capital, investment real estate, long-term amortized expenses, and fixed assets. As of the end of 2022, the balance of the company's monetary capital, investment real estate, long-term amortized expenses and fixed assets was 441.25 million yuan, 178.82 million yuan, 253.67 million yuan and 144.63 million yuan respectively, accounting for 13.61%, 55.51%, 7.80% and 4.50% of total assets at the end of the period. Among them, investment real estate was mainly Kevin Chaoyang School and 3 (about 66,000 square meters) office buildings, if according to the company, According to the revaluation of the sale price of office buildings announced in 2020, the value of the three office buildings is estimated to be about 1.59 billion yuan. In addition, the holding property also includes a campus with a construction area of about 170,000 square meters. The company's assets are of high quality and the structure is excellent. The school adopted the model of collecting tuition fees in advance, and the company's net operating cash flow has maintained a good trend. The company's net operating cash flow in the year 2020-2022 was 3508.1 million yuan, 452.1 million yuan and 297.37 million yuan respectively, accounting for 109%, 159% and 173% of operating income during the same period, respectively; net operating cash flows were 3.5 million yuan, 121.49 million yuan and 223.02 million yuan respectively, showing a rapid inflow trend. It is expected that as the number of students enrolled expands, the company's net operating cash flow will continue to grow rapidly. Excellent operating cash flow.

Vocational education is progressing steadily, and the training base is worth looking forward to. In response to national policy calls, the company actively laid out vocational education business, and established Haike Vocational Education (Beijing) Technology Co., Ltd. as a vocational education development platform, with the field of integration of industry and education as a key development goal. Based on deepening the integration of maternity and education, school-enterprise cooperation and discipline co-building, Haike vocational education aims to cultivate applied skilled talents and promote employment in the market. It has signed agreements with industry-leading companies including Baidu, Tencent, Xinmeier (Beijing) Technology Co., Ltd., Henan Kecheng Digital Technology Co., Ltd., Kai Mingchen, and Beijing Huike. Among them, it collaborated with Baidu to establish an artificial intelligence internship training base at Aohanqi Vocational High School, which combines school resources, platform value and Baidu's advantages very well, which is conducive to cultivating talents in related fields. At the same time, Haike Vocational Education cooperated with six colleges and universities in Shandong, Sichuan, Henan, Hunan, Inner Mongolia and other places to establish industrial colleges. The level of operation covered undergraduate, senior, and middle school occupations. The total number of students enrolled exceeded 1,500. The cooperation included professional application, admissions and employment, training room and platform construction, quality course construction, competition guidance, practical teaching, improvement of student professionalism, internship training, etc., with professional settings including the application of big data technology, interactive design, digital media technology, virtual reality technology and applications. Also, according to the school's official website and investor relations platform, Haike Vocational Education has signed strategic cooperation agreements with Beijing City University and the Zhengzhou Shengda School of Economics and Trade Management. The future development of vocational education and the construction of training bases are worth looking forward to.

Profit forecast and investment advice: The company's revenue for 2023-2025 is expected to be 234 million yuan, 306 million yuan and 369 million yuan respectively, up 36.4%, 30.6% and 20.7%, respectively; the net profit of the mother is -23.53 million yuan, 4.68 million yuan and 12.86 million yuan respectively, up 75.6%, 119.9% and 174.6%, respectively; EPS is -0.04 yuan, 0.01 yuan and 0.02 yuan respectively. The company is the only listed company in the A-share market with international schools as its main business. It has achieved standardized development of basic education through organizer changes+operation services. At the same time, it has vigorously developed quality education. Education revenue is expected to grow steadily, and it will usher in an operating inflection point as the campus usage rate increases. At the same time, the company is vigorously developing vocational education and cooperating with institutions of higher learning to establish industrial colleges. The number of students enrolled continues to grow, the service content is rich and diverse, and the professional settings meet development trends. The construction of a training base is worth looking forward to. The revaluation value of the company's assets is high, operating cash flow is excellent, and the development trend of vocational education is good. Considering that the company is expected to usher in a trend operating inflection point, they are optimistic about the company's valuation repair and long-term growth, and gave it a “Buy-A” rating, 1.5 times PB in 2023, corresponding to a target price of 5.60 yuan.

Risk warning: The transformation of vocational education falls short of expectations, enrollment falls short of expectations, loss of core teachers, etc.