Key Views
Revenue increased 40% +, adjusted net profit increased 60% +
Thinking Music Education achieved revenue of 711 million yuan/+44.3% in fiscal year 2019, with a revenue CAGR of 60.9% in 2016-2019. The overall gross margin was 42.7% /+4.8pct. The first was a 6% increase in tuition fees, and the second was an increase in teacher productivity. The campus usage rate was about 70-80%. The sales/management/R&D expense ratio was 3.0%/18.6%/6.4% respectively, an increase of 0.6/4.3/0.1pct over the previous year. Excluding the impact of listing expenses, the adjusted management expense ratio was about 15.0% /+3.6pct. The company's adjusted net profit was 136 million yuan/+62.4%, and the corresponding net interest rate was 19.1% /+2.1pct. At the end of the period, the company's contract liabilities were $283 million/ +32.0%, and the cash and cash equivalents on the accounts were $241 million/ +549.1%.
Various operating indicators are improving, maintaining revenue of 30% + and performance 30-40% + growth rate guidelines for the time being
The total number of students enrolled in the company this year was 296,600 students/ +22.8%, and the 2016-2019 CAGR was 45.0%; the overall number of students also broke through the 100,000 mark, an increase of more than 19% over the previous year. The total number of tutoring hours for the year reached 8.642 million hours/ +36.2%; the 2016-2019 CAGR was 46.7%; the average tuition fee was 82.3 yuan/+6.0%, and the 2016-2019 CAGR was 9.7%. The renewal rate increased year by year, reaching 74.1% in 2019, an increase of 5.8 pct over the previous year, and the refund rate dropped to 6.7% from 9.1% in 2018. The growth rate of winter vacation revenue in 2020 reached about 30%. Under the influence of the epidemic, spring revenue still increased by about 10%, and has already exceeded the total revenue scale of the spring of 2019. Looking at the whole year, if the epidemic ends in April, the growth rate guidelines of 30% revenue growth and 30%-40% profit growth in 2020 are still expected to be achieved. If the epidemic drags on to May-June, the performance guidelines may be lowered. Currently, the company's operating cash flow in February is still positive, but March may be affected.
Channels continue to expand & sink, promote dual teachers and online schools, and promote incentive plans
The company will continue to strengthen its penetration into the Shenzhen market and expand its geographical coverage in the Guangdong-Hong Kong-Macao Greater Bay Area, adding 46 campuses to 100/ +85% in 2019, entering Jiangmen and Zhongshan. It plans to add 36, 40, and 52 campuses respectively in 2020-2022, and plans to open a total of 228 campuses by the end of 2022. The company expanded online with the Thinking Music Online School brand. More than 3,000 new paid students were added in one month during the pandemic. The attendance rate for old students was 87%, the attendance rate for new campuses was low, and the planned online revenue share for the future reached about 30%. At the same time, the company launched a two-teacher classroom in the fall of 2019 and adopted the “Excellent Teacher Online Live Teaching+Counselor Offline Q&A” model to push the business to sink into second, third, and fourth tier cities. The company currently has more than 170 full-time R&D personnel, more than 10 supervisory experts, and a number of experts contracted from outside parties to work together to build the company's middle and back office to help the company deepen its accumulation on the content side, and will continue to increase investment in R&D in the future. The company innovatively introduced incentive mechanisms such as teacher partners, principal management fission mechanisms, and option partner systems to attract and bind outstanding talents in the industry. There is zero turnover of middle and senior staff (principals and above) in the company. The turnover rate of employees over two years increased slightly to 3.9% from 3.5% in 2018. Overall, it is at a relatively reasonable and healthy level, and employee satisfaction is good.
Risk warning
The epidemic fell short of expectations, uncertainty brought about by stricter regulatory policies, increased risk of market competition, etc.