The pandemic put pressure on performance. After the adjustment, the net profit returned to the mother decreased by 17%: the number of students enrolled in 1H2020 was -8.2% year-on-year to 262,200, and the number of class hours was -12.9% year-on-year to 5,5869 million. The retention rate of students in the winter vacation transfer spring class was 80%, and the offline and online conversion rate of the winter vacation course reached 85%. The company's 1H2020 revenue was -11.3% year-on-year to 1.83 billion yuan. The company's gross margin decreased 5.8 percentage points to 35.6% year-on-year due to the impact of falling revenue, increased expenses caused by online courses, investment in epidemic prevention and control, and additional depreciation expenses. Net profit was -29.6% year-on-year to $052 million. If the impact of equity compensation costs is excluded, the company's adjusted net profit was -17.1% year-on-year to $62 million, and no interim dividend was paid.
Steady its position in the midst of ups and downs, and set sail again after active adjustments: the company actively launched the 1 plan (1 yuan course) to actively enroll students. As of June 30, 2020, the number of short-term classes in the reporting period increased 123.6% over the same period last year. Personalized tutoring was hit hard by the epidemic in the first half of the year. Revenue fell 21% year on year to 280 million yuan, but in July 2020, personalized counseling revenue increased 29% year on year, and the number of people in the regional market outside Guangzhou increased 52.4% year on year. It is expected that personalized counseling will pick up significantly in the second half of the year. Due to the impact of the epidemic, there was no net increase in the company's learning centers to 265 in the first half of the year (7 new ones opened, 7 closed or adjusted), and 20 new stores are expected to be added in 2020, but next year, as the epidemic recovers, the company will maintain an annual opening rate of 40-50 stores.
Future development strategy: In the future, the company will invest in education and OMO, continue regional expansion (increase penetration in the Greater Bay Area), and strengthen language strategies. Optimize the incentive system, further promote the four-level partner system, retain outstanding management and teaching talents, promote super outstanding student programs, and reserve high-level graduate talents. Furthermore, the company is seeking suitable targets and actively promoting mergers and acquisitions to accelerate its own development.
The target price is HK$5.0, maintaining the buying rating: Due to the impact of the pandemic, the company's offline institutions only resumed classes in May-June. It also delayed the store opening plan and disrupted the pace of business development after the organizational restructuring, which affected the 20-year performance.
As the epidemic recedes, the company will follow its “334 Plan” for one year (three-year revenue is in line with a 30% growth rate to reach 4 billion dollars in revenue). We will accordingly lower our profit forecast for the next three years and adjust the target price to HK$5.0 accordingly. Corresponding to a 42.8% increase in the previous day's closing price, equivalent to 29 and 20 times PE of profit in years 20 and 21.
