Key points of investment
On August 24, Quantong Education released its 2017 semi-annual report. During the reporting period, the company achieved operating income of 444 million yuan, +9.09% year on year; net profit attributable to shareholders of listed companies/net profit of -0.18/-18 million yuan after deduction of shareholders not attributable to shareholders of listed companies, -149.73%/-158.48% year-on-year. The company's EPS was -0.03 yuan, a decrease of 150%.
The company's revenue continues to grow, thanks to the rapid expansion of the EDSaaS business. During the reporting period, the EDSaaS/home-school interactive upgrade/continuing education business achieved revenue of 1.96/133/96 million yuan, +34.04%/-3.57%/+7.58% over the same period last year.
Among them, the EDSaaS business teamed up with brand suppliers to improve platform development and focus on improving the operational efficiency of information technology projects; the home-school interactive upgrade business consolidated the foundation of operator cooperation, deepened product operation, and upgraded services such as growth assistants, full curriculum, and smart hardware; the total national training project business in the continuing education business was rising steadily, market share increased, and several provinces obtained long-term bidding qualifications for 2 to 3 years. Hebei, Guangxi and other provinces continued to maintain a clear lead.
The sharp decline in profits was due to increased business competition and cost increases brought about by market expansion. During the reporting period, the gross margin of the EDSaaS/home-school interactive upgrade/continuing education business declined by 18.27/12.44/1.74pct to 13.95%/30.37%/33.58%. The company's expenses management costs/sales expenses were 0.81 to 25 million yuan, +29.51%/-12.89% year on year, and financial expenses were 0.3 billion yuan (+272.72%). The cost rate for the period increased by 2.44 pct to 24.57% year on year. The decline in gross margin was compounded by an increase in the cost rate, and the company's net interest rate after deducting non-return to the parent fell 11.29 pct to -4.06% year-on-year.
The company's future strategic goals are clear. The company will continue to expand and further operate EDSaaS and other businesses, expand the service base and entry advantages; continue to iterate and upgrade platforms and products around user needs to enrich and improve platform service capabilities; strengthen technology research and development and unite industry forces to steadily and orderly advance the construction tasks of the National Engineering Laboratory; adhere to the idea of endogenous and epitaxial development, actively pay attention to suitable high-quality targets around the development of the main business, maintain a prudent investment attitude, and further integrate external resources through foreign investment or mergers and acquisitions to promote the company's overall leapfrog development.
Profit forecasting and ratings: The company is based on the campus and provides educational information services to families, and has formed a business service system covering B-side and C-side entities such as education authorities, schools, teachers, parents and students. We believe that the company will rely on its platform and customer resource advantages, omni-channel service and campus entrance advantages, and technology research and development advantages to restore its dominant position in the industry in the big trend of education informatization. The company's EPS for 2017-19 is expected to be 0.29/0.42/0.55 yuan, corresponding to the current price of PE43/30/23 times, maintaining the “increase in holdings” rating.
Risk warning: increased competition in the industry, repayment risk; risk of impairment of goodwill; new technology upgrading.
