Incident Overview
2023H1's revenue/net profit/adjusted net profit was 918/274/272 million yuan, respectively, up 23.49%/17.49%/17.31% year-on-year, compared to 21H1, up 53.61%/115.73%/90.74%. The increase in net profit was lower than revenue mainly due to a 76% year-on-year decrease in government subsidies. 23H1 net profit after excluding government subsidies was 255 million yuan, an increase of 65.27% year-on-year; adjusted net profit slightly lower than net profit was mainly due to 23H1's net exchange loss.
In August, due to the lack of substantial progress in the college project, the company terminated the agreement signed with Fujian Construction Investment, and Fujian Construction Investment was required to return 50 million yuan of security deposit already paid to the company.
Analytical judgment:
Academic education is growing steadily. By business, 23H1's full-time higher education services/education resource output/continuing education services/other revenue was 7.49/1.02/0.65/02 billion yuan respectively, up 29.1%/48.7%/-1.9%/-92.6% over the previous year. The sharp decline in other revenue was mainly due to the transformation of the digital factory model and the reduction in the number of engineers. In terms of academic education, 1) Branch Colleges: 23H1 The number of students enrolled in Dalian/Chengdu/Guangdong was 1.86/2.07/13,500, respectively, up 10.3%/25.2%/8.6%; 2) Looking at academic levels, the overall number of students enrolled in 23H1 reached 53,000, up 15.2% year on year. Among them, the number of undergraduate, college/junior college students enrolled was 3.98/0.37/0.94 million, respectively, an increase of 7.8%/-9.0%/90.7% over the previous year. In the past two years, the company has carried out expansion projects, expanding the campus capacity by 40%. As of 23H1, the three colleges have 58,000 beds, and the comprehensive utilization rate of the campus for full-time higher education has reached 91%.
Education resource export services are growing at a high rate, and software sales are benefiting from interest-rate loan policies. 23H1 education resource export business revenue was 120 million yuan, an increase of 48.7% over the previous year. Among them, revenue from smart education platforms and software, training rooms and content was 51 million yuan, an increase of 75% over the previous year. Our analysis mainly benefited from the interest-rate loan policy. (1) 23H1 cooperated with 60 colleges, 37 of which were undergraduate colleges, serving 20,500 students. Although the number of cooperating institutions declined year on year, the number of students served increased by 14.3% year on year, which is conducive to raising profit levels.
The slight decline in continuing education business was mainly due to 2C, where 2B achieved double growth. 23H1's continuing education business revenue was 65 million yuan, down 1.9% from the previous year. Our analysis mainly came from the 2C side. This is also related to the company's strategy of gradually shifting from offline to online and offline integration. At present, the company's online education platform has added more than 270,000 registered users, more than 27,000 course learning users, and provided 2C training to about 13,000 students. However, judging from the 2B business, which has high qualification requirements, the company has strong barriers. 23H1 implemented more than 60 2B training programs, covering nearly 90,000 people, and was approved to open 14 new majors in the 23/24 academic year;
The increase in gross margin and the reduction in government subsidies have led to an increase in adjusted net interest rates lower than gross profit margin. 23H1's gross margin was 50.01%, an increase of 3.02PCT over the previous year. We determined that the increase in gross margin was mainly due to the increase in the share of high-margin education resource export business. 23H1 The adjusted net interest rate was 29.60%, down 1.56 PCT from the previous year. The increase in adjusted net interest rate was lower than gross margin mainly due to a decrease of 8.58 PCT in the share of other income, mainly due to a reduction in government subsidies. In addition, the income tax rate decreased by 1.19 PCT; the sales expenses/management expenses/R&D expenses rate/adjusted financial expenses (excluding net exchange income) ratio fell by 0.19/1.42/0.88/1.14 PCT. According to the company's announcement, the completion of some R&D projects carried out earlier contributed to a reduction in R&D expenses, and adjusted financial expenses benefited from an increase in deposit interest; the share of share-based compensation and expenditure adjustments decreased by 0.51 PCT; the share of financial asset impairment increased by 0.30PCT; other net income increased by 0.04 PCT; 7) Other expenses accounted for Increase 0.06 PCT.
Investment advice
We analyzed that (1) Academic education business: the number of students enrolled in the 23/24 academic year in Dalian/Chengdu/Guangdong was 0.80/0.65/0.5 million, an increase of 16.5%/7.3%/18.8% over the previous year, and the number of undergraduate/ college/ college enrollment places was 1.22/0.14/0.59 million, respectively, an increase of 3.4%/59.7%/32.8% over the previous year. Currently, there are a total of 53,000 students enrolled in the three colleges. In February, the main student apartment for the 8th phase of the Chengdu University Project was completed, adding 3,200 new beds for the 23/24 academic year; with the continuous expansion in the future, the long-term outlook is that the number of students enrolled will increase further; according to our estimates, the company's tuition fee level continues to rise, and the average tuition fee will increase by more than 5% each year; and due to the shorter depreciation period of Guangdong University, the future is expected to contribute to a higher profit margin; (2) Continuing education business: Academic education and 2C business are expected to usher in a post-pandemic recovery. Barriers remain high; (3) The future drive of the education resource export business comes from the expansion of new customers and renewal of contracts for old customers, and the rapid horizontal and vertical expansion and category expansion of smart education platforms. Considering that 23H1's growth is in line with our expectations, maintaining a 23-25 revenue forecast of $1,776/20.27/$2,303 million, maintaining a net profit forecast of $439/508/613 million, corresponding to EPS 23-25 of $0.68/0.79/0.95, a stock price of HK$2.81 on August 31, 2023, and a corresponding PE of 4/4/3X (HK$0.93 = RMB 0.93), maintain a “buy” rating.
Risk warning
Potential risks of policy changes, channel expansion and campus utilization not meeting expectations, intense market competition and new entrant threats, and systemic risks.