The 2023 interim results were in line with expectations: the company's revenue for the first half of 2023 was 1,953 million yuan, up 4.0% year on year; gross profit of 997 million yuan, up 0.4% year on year; core net profit was 176 million yuan, down 2.7% year on year, and the company's interim results were in line with expectations. The revenue of the company's three business segments, cooking technology, information technology and internet technology, and automotive services, reached 11.11, 3.95 and 404 million yuan respectively, a year-on-year decrease of 1.9%, an increase of 2.5% and 24.5%, and a year-on-year share of revenue of 56.9%, 20.2% and 20.7%, respectively, with a year-on-year decrease of 3.4, 0.3 and an increase of 3.4 percentage points, respectively.
Profit margins have a lot of room for improvement: in mid-2023, the company's gross margin and core net profit margin were 51.1% and 9.0%, respectively, down 1.8 and 0.6 percentage points from the same period last year, and there is still a big gap with the company's historically high profit margin level. As the opening of the company's new schools slows down, enrollment increases, and marketing and promotion expenses are controlled, the company's profit margin has plenty of room to repair.
Investment in campus construction has come to an end: As of mid-2023, the number of the company's schools and centers was 244, which is the same as the same period last year. After the company's rapid expansion in 2017-2021, the opening of new schools has slowed down, and capital expenses will be reduced accordingly. Currently, the first phase in Chengdu and Jinan has been put into use, and schools in Guiyang and Zhengzhou are under construction. It is expected to be completed in 2024. The company's average number of trainers was 147,000, an increase of 2.6% over the previous year, and an increase of 9.0% over 2019. The company's school utilization rate will gradually increase.
New enrollment has resumed growth, combining course length and length: As of mid-2023, the number of newly trained people in the company reached 85,000, an increase of 20.0% over the previous year, indicating that new admissions have recovered well after the impact of the epidemic was over. Among them, there were 3,4776 new trainers for long-term courses, an increase of 10.8% over the previous year, and 49,776 new trainers for short-term courses, an increase of 27.5% over the previous year. The company's admissions strategy is to combine long and short courses, “longer in the long term, shorter in the short term”. Long-term courses ensure the stability of the company's performance, short-term courses increase the utilization rate of the campus, and increase the flexibility of performance.
Maintaining the “buy” rating, the target price is HK$5.00: As the company resumes enrolling new students, the utilization rate of the company campus increases, and the company's profitability will also be restored. We expect the company's revenue for 2023/2024 to be 42.3/4.92 billion yuan, up 10.8% and 16.1% year-on-year respectively, and core net profit of 498/815 million yuan respectively. Maintaining the company's “buy” rating, the target price is HK$5.00, corresponding to 20/12 times PE in 2023/2024.
Risk warning: Private education policy changes, new enrollment falls short of expectations, tuition fee increases fall short of expectations