The business of early education is gradually recovering. 3Q20's operating income is 139 million yuan (- 32.03%), which is better than 57 million yuan (- 53.52%) for 1Q and 69 million yuan (- 54.61%) for 2Q. The rebound in 3Q revenue is mainly due to the resumption of classes at the company's early education center, which began in late May. As of August 28, more than 78% of the company's centers officially resumed classes. We believe that as the epidemic improves, the company's revenue situation is expected to be further improved.
The 3Q gross profit margin improved month-on-month, and the cash flow recovered. 3Q gross profit margin is 56.06% (- 12.74pct), compared with 2Q gross profit margin 31.12% (- 34.66pct) month-on-month improvement. The net profit of return to home in the first three quarters was 102 million yuan (+ 22.31%), of which 3Q realized a net profit of 125 million yuan (+ 153.93%), mainly due to the undisturbed divestiture of manufacturing subsidiaries; 3Q deducted non-return net profit of 43.1 million yuan (- 11.70%), much better than-3.54 million yuan (- 122%) of 1Q and-18.45 million yuan (- 192%) of 2Q. Affected by the epidemic situation, the cash flow of 1Q and 2Q operating activities was negative. With the gradual recovery of the company's business, the net cash flow of 3Q operating activities increased to 17.44 million yuan.
Sell third base technology and focus on early education business. The company sells 100% of the shares of Dalian third Base Technology Co., Ltd., a traditional manufacturing subsidiary, adjusts the industrial structure and focuses on early education business strategically, which is expected to achieve high-quality development. In addition, tighter regulation has further reduced the living space of small and medium-sized institutions, and head institutions are expected to usher in opportunities for expansion. On the basis of the layout of first-and second-tier cities, the company will dig deep into the market and launch a sub-brand "Little Jim", which is expected to further consolidate its market position and explore new growth points.
The post-epidemic era is expected to lead the industry concentration. With the improvement of the domestic COVID-19 epidemic and the acceleration of vaccine landing, the early education industry will also usher in a recovery. As the leader of the early education industry, the company, with its own platform and financial advantages, is conducive to the integration of high-quality property resources and teacher resources idle in the early education industry during the epidemic, and leads the improvement of industry concentration during the post-epidemic period.
Profit forecast and investment advice: we believe that the company has recovered strongly after the epidemic and the business trend continues to improve.
It is estimated that the company's annual income in 2020-22 will be 4.13,8.27,951 million yuan, up-34.5%, 100.2% and 15.1% over the same period last year, and the net profit of returning home will be 1.55,2.04 and 253 million yuan, up 29.5%, 31.4% and 24.2% over the same period last year. PE valuation method: 35-40 times PE in 2021, corresponding to the reasonable value range of 8.63-9.86 yuan. Give a rating of "better than the market".
Risk tips: tighter policy supervision, slow recovery of store passenger flow, changes in senior executives, and loss of education management team.