Revenue for 2022 is basically in line with our expectations, and profit is lower than our expectations. Minsheng Education announced 2022 results: revenue of 2,354 billion yuan, down 1.7% year on year, basically in line with our previous expectations; adjusted net profit to mother was 599 million yuan, down 22.4% year on year, lower than our expectations of 19%. The year-on-year decline in revenue and profit mainly takes into account the drag on revenue growth and profit side of the new merger of online education. In 2022, the company paid out HK4.29 cents per share (total RMB 159 million), corresponding to a dividend yield of 32% and a dividend yield of 11% (as of the close of March 30, 2023).
Development trends
External disturbances are compounding, putting pressure on revenue side growth. 1) School education revenue was 1,311 billion yuan, up 4.8% year on year. Among them, tuition fees increased 4.3% year on year and accommodation expenses increased 11.4% year on year. In terms of student numbers, by the end of 2022, the total number of students enrolled in the company's schools was 100,141, down 1% from the previous year.
2) Online education revenue was 1,042 billion yuan, down 8.8% year on year. We believe that the main reason is weak demand and pressure on Aopeng's enrollment due to repeated pandemics and policy shocks. According to the “Notice on Ending the Work Related to the Modern Distance Education (Online Education) Pilot” issued by the General Office of the Ministry of Education, we expect the revenue impact of the policy to continue in the short to medium term.
The profit side actively invests and shares the impact. In 2022, 1) the company's gross margin was 54.2%, down 2.5ppt year on year, mainly due to the company taking the initiative to increase investment in running schools to optimize teaching quality, and teacher costs increased by 10.5%/6.3% year on year; 2) the company's sales expenses and management expenses increased by 12.5%/6.3% year on year, mainly due to the consolidation of new online education entities during the reporting period; 3) adjusted net profit to mother of 599 million yuan, a decrease of 22.4% year on year, mainly due to the company's increased investment in online education, increased loan interest rates, and fair value losses in gambling agreements related to the acquisition of the company. We expect that with the optimization of the company's fee control, the company's gross margin and adjusted net profit margin are expected to show a year-on-year improvement trend in 2023.
Aim at the industrial Internet and open up the education and human resources markets. Currently, the company's business covers vocational education, higher education, and continuing education, and the transformation to “Internet +” has basically been completed. At this stage, the company targets the trillion-yuan market in the human resources service industry, proposed a specific strategic plan of “self-employment+cooperation”, and joined ecological partners to open up the last kilometer from campus to workplace. In July 2022, the company issued an announcement stating that it had completed the acquisition of 51% of the shares of Shanghai Zhongzhi International Business Development Co., Ltd., and the two sides signed a strategic cooperation agreement. We believe that the acquisition is expected to strengthen the “Internet+Vocational Education” development strategy, promote the integration of superior resources between the two sides, promote the integration of industry and education, and unleash growth momentum in the long term.
Profit forecasting and valuation
The 2023 revenue forecast remains unchanged; considering the increase in expenses due to the company's deepening transformation and upgrading, the 2023 adjusted net profit forecast was lowered by 16% to 650 million yuan; introduced the 2024 revenue/adjusted net profit forecast of 2.58 billion yuan/70 billion yuan. Maintain the outperforming industry rating and reduce the target price by 30% to HK$0.5 (the price-earnings ratio in 2023 was lowered from 4 times to 3 times, taking into account the decline in the industry's valuation center). The current stock price is trading at 2.3 times the 2023 price-earnings ratio, corresponding to 28% upside.
risks
Commercial and non-profit risks in campus education; online education business policy risks.