Q3 has improved significantly, and I look forward to an increase in Q4 performance
On October 30, the company released its 2020 three-quarter report. The first three quarters achieved revenue of 422 million yuan, YoY -51.82%; achieved net profit of 84 million yuan, YoY +583.39%; net profit of the mother after deduction was 54 million yuan, YoY +33.56%. The decline in revenue in the first three quarters was mainly due to the sale of chemical assets and the impact of the epidemic. Non-recurring profit and loss mainly included investment income of 25.41 million yuan from the sale of two chemical subsidiaries. Q3 achieved revenue of 219 million yuan in a single quarter and net profit of 52 million yuan to the mother, a significant improvement over the first half of the year. We believe that in the context of policy dividends such as the construction of “three classrooms”, the effects of the full resumption of classes in the fourth quarter were compounded by the traditional peak season, and performance is expected to improve further. The company's EPS is expected to be 0.59/0.73/0.87 yuan in 2020-22, maintaining the “increase in holdings” rating.
The divestment of the chemical business focuses on education, and the share repurchase has been completed
The year-on-year decline in the company's revenue in the first three quarters of 2020 was mainly due to the fact that Changshu New Materials and New Materials Sales Company was not consolidated after the transfer was completed in March. Currently, the company is planning to transfer 65% of the shares of the subsidiary Zhenfu New Materials. The divestment of loss-making chemical assets increased the company's profitability. The gross margin of listed companies in the first three quarters of 2020 was 47.45%, YOY+46.04pct; the fee rate for the period was 37.67%, YOY+18.91pct. The increase in gross margin and period expenses ratio is mainly due to an increase in the share of revenue from the education business.
In September, the company's share repurchase was completed. 8.3 million company shares were actually repurchased, accounting for 1.86% of the company's total share capital, and the total transaction amount was 95.82 million yuan.
Benefiting from the “three classrooms” policy, the fourth quarter's performance is expected to further improve. In January, the company signed a 158 million yuan education informatization project contract with the Henan branch of China Mobile Construction; in May, the company signed a 28.58 million yuan “Internet+Education” quality balance project procurement contract with the Education and Sports Bureau of Weihui City, Henan Province. It was completed and accepted in the third quarter, confirming revenue of 22 million yuan. In the first three quarters, Oveia signed a total of 1,793 sales contracts, totaling 262 million yuan. We believe that education informatization 2.0 and the construction of “three classrooms” are beneficial to the subsequent order situation. Oveia's performance in the first half of the year was affected to a certain extent by the epidemic, and there was a significant recovery in the third quarter. The fourth quarter is the settlement period for education informatization projects. It is also a traditional peak season. Considering the compensation effects of demand delayed due to the pandemic in the first half of the year, Oveia's fourth quarter performance is expected to improve dramatically.
Leading recording and broadcasting companies enjoy policy dividends and maintain “increase holdings” ratings
We maintain the company's profit forecast. It is estimated that net profit attributable to the mother in 2020-22 will be 263/324/391 million yuan; EPS will be 0.59/0.73/0.87 yuan, of which the education and chemical business contributed 0.68 yuan and 0.05 yuan respectively in 2021. Comparable to education companies, the average PE in 21 years was 23 times. Considering that the new education informatization policy will make recording and broadcasting more popular in the next three years than other segments, the company's education business was given 27 times PE in 21 years, corresponding to a market value of 8.181 billion yuan. Comparable chemical companies had an average of 1.7 times PB in 21, and the chemical division predicted net assets of 232 million yuan in 2021, giving the chemical industry 1.7 times its net assets of PB, corresponding to a market value of 394 million yuan. Add the reasonable market value of all listed companies to 8.575 billion yuan, maintain the target price of 19.19 yuan, and maintain the “increase in holdings” rating.
Risk warning: Uncertain risk of implementation of education informatization policies, risk of epidemic risk, risk of market competition, risk of environmental supervision, risk of impairment of goodwill, risk of mergers and acquisitions integration.