Investment logic:
The national will of the education information technology industry has a high level of certainty over a long period of time, focusing on software & platform product opportunities in the 2.0 era.
Since 2012, the country's financial expenditure on education has remained above 4% for 7 consecutive years, of which 7-8% has been invested in the field of education informatization. We expect education informatization spending to exceed 380 billion yuan in 2020. Looking at the short term, due to government tax cuts and fee cuts and macroeconomic effects, the growth rate of government revenue has slowed down in the short term. We believe that in the long run, education is still an important issue for people's livelihood. The State Council has clearly stated that it wants to ensure that public budget education expenditure only increases or does not decrease, and the size of the industry is expected to continue to grow. Since the education informatization 2.0 period, we believe that as the promotion of three platforms comes to an end, the next opportunities for education informatization are mainly software & platform products. The share of education informatization products in fixed assets in education increased from 6.07% in 2014 to 6.88% in 2019. Among them, the share of software products in information technology equipment increased from 14.24% to 21.36%, showing that the growth rate of information technology assets and software asset scale is higher than the growth rate of school fixed assets; SmartShow2019 statistics, 2018 focus, 2018 attention The proportion of users of information-based platforms is close to 50% and is increasing year by year, and platform-based system products have become the most important category of interest in education informatization.
Leading education companies focus on brand+channel advantages in the short term to promote project implementation, and are optimistic about data accumulation to build barriers in the long term. The company is a leading national education cloud platform enterprise. At present, it has built 16 provincial platforms, 120 local and city platforms, and 800 district and county platforms. The national education cloud platform market share is 65%, with remarkable scale advantages and channel advantages; the company has built a brand advantage by undertaking national projects and winning many national awards. With a cloud platform as the center, the company continues to develop an endogenous+outreach layout around a smart education product system integrating teacher teaching, student learning, education authorities and school management, and enriches the product system. In the context of the upward shift in education informatization procurement levels, enterprises with comprehensive product service services+channel resource advantages are expected to take the lead in benefiting. Looking at the long term, the cloud products operated by the company have opened 12.83 million teacher spaces on the national education resources public service platform, 6.1 million student spaces, 5.61 million parent spaces, 400,000 school spaces, and 9.9 million e-learning spaces with real-name authentication. At the same time, the company has launched C-side products such as smart learning, management, evaluation, and research, which is expected to deposit massive amounts of C-side data and build barriers to the teaching and management system by fully exploiting the value of data.
The traditional main business is relatively stable, and the shareholding guarantee incentives for subsidiary employees is in place. The company's traditional main business includes smart IC cards and smart financial terminal products and services. The smart IC card sector has been accelerated by ETC and enabled by 5G. Financial terminals have received an increase in the proportion of new products with high gross margins such as QR codes. The company's traditional main business has maintained an average annual gross profit contribution of around 400 million, and the performance safety cushion is relatively stable. The company's important subsidiaries have implemented an employee shareholding mechanism. Currently, Tianyu Education employees hold 20% of the shares, JULIAN Network employees hold 49% of the shares, and Baiwang Information employees hold 20% of the shares. In addition, two war investment institutions, Shenzhen Qianhai Fumei and Wuhan Credit Investment, have been introduced into the education subsidiary. The management mechanism is improving, and consistent interest binding is expected to drive performance growth.
Profit forecast: We expect the company's net profit from 2019 to 2021 to be 2.24/148/187 million yuan. The corresponding PE is 21/31/25 times. It is covered for the first time and is highly recommended.
Risk warning: The traditional main business has declined sharply, and the advancement of smart education business has fallen short of expectations