Event: The company released its semi-annual report for 2023. According to the announcement, 23H1 achieved operating income of 1,953 million yuan, a year-on-year increase of 4.0%, net profit of 204 million yuan, a year-on-year decrease of 15.9%, and adjusted net profit of 176 million yuan, a year-on-year decrease of 2.7%. The adjustments were expenses paid on a non-cash share-based basis and exchange profit and loss.
Key points of investment
The number of new students enrolled is growing at a good rate, and short-term and three-year long-term courses have resumed relatively quickly. In the first half of 2023, the company achieved revenue of 1,953 billion yuan, an increase of 4.0% over the previous year. By brand, in the first half of 2023, New Oriental Cooking/Xinhua Computer/Wantong Auto Repair/Omichi/Huaxin Zhiyuan/Delicious Academy achieved revenue of 9.19/3.80/4.04/1.61/0.15/32 billion yuan, respectively, compared to -3%/+4.2%/+24.5%/+2.7%/-26.7%/+9.4%, respectively. The average number of people trained by the company in the first half of the year was 147,000, an increase of 2.6% over the previous year, and the average tuition fee was 26,200 yuan, an increase of 1 year over the previous year.
5% Looking at the structure, the average number of trainees for 1-2 years/2-3 years/3 years/short-term courses was -1.6%/-37.8%/+20.8%/+22.7%, respectively. In terms of numbers, the average number of trainees from New Oriental Cooking/Omichi/Delicious Institute/Xinhua Computer/Huaxin Zhiyuan/Wantong was 5.9/0.5/0.1/4.2/0.05/3.9/0.1 million, respectively, compared with -4%/+3%/+8%/-1%/-37%/+20%/+86%. In terms of price points, the average customer unit price for New Oriental Cooking/Omichi/Delicious Institute/Xinhua Computer/Huaxin Zhiyuan/Wantong was 3.11/6.99/5.88/1.82/5.79/208,000 yuan, respectively, an increase of 1.5%/6.2%/1.2%/5%/15.7%/3.6% over the previous year. As of the first half of 2023, the total number of schools under the company was 244, which is basically the same as at the end of '22. Among them, New Oriental Cooking/Huaxin Zhiyuan/Wantong Auto Repair/Omandi changed to -1/+1/+1 campuses respectively. The number of new students enrolled in the company in the first half of the year was 85,000, an increase of 20% over the previous year. Among them, New Oriental Cooking/Xinhua Computer/Wantong Auto Repair/Omichi/Huaxin Zhiyuan/Delicious Academy/Omanti were +26.1%/+8.5%/+21.7%/+22.6%/-11.8%/+8.3%/+76.8%, respectively. In terms of length of study, the number of new trainers for the company's 1-2 years/2-3 years/3 years/3 years/short-term courses was +18%/-24.6%/+21.4%/+27.5%, respectively. The three-year and short-term courses resumed relatively well.
As the number of new students enrolled increases, gross profit margin and net interest rate are expected to improve. The company's gross margin for the first half of 2023 was 51.07%, down 1.8 pct from the previous year. We believe it was mainly due to the recovery in the number of students enrolled, which led to a sharp increase in the salary and benefits of faculty and staff, as well as teaching-related consumables and other costs. Among them, the gross margins of New Oriental Cooking/Omichi/Delicious Institute/Xinhua Computer/Huaxin Zhiyuan/Wantong were 52.7%/47%/53.4%/55%/49, respectively.
2%/51.8% On the cost side, the company's sales/management/financial expenses ratio was 26.27%/13.10%/3.66%, respectively, with a year-on-year change of +2.69 pct/+0.02 pct/-0.72 pct. The sales cost ratio has increased. We think it is mainly due to the company increasing recruitment efforts and hiring professional consultants after the epidemic to design a new image for New Oriental. On the net profit side, the company's net interest rate for the first half of 2023 was 10.43%, down 2.12 pct from the previous year. We believe that as the number of new students enrolled continues to recover, teacher-student ratios are optimized, and rigid costs are diluted, the company's gross profit margin and net interest rate are expected to improve.
Investment suggestions: In the short term, the company was affected by the epidemic last year, and the number of new students enrolled began to gradually recover after the epidemic. The growth rate was good in the first half of the year, and it is expected that the enrollment boom will continue in the second half of the year. At the same time, the profit base for the second half of last year was low due to the epidemic factors, and the profit for new enrollment in the first half of the year is expected to be gradually released in the second half of the year. In the current economic environment and in the context of the company's business expansion and recovery, the company's short-term training course enrollment is expected to grow. Looking at the medium to long term, considering the continuation of the encouragement and orientation of vocational education, the company's growth is relatively good with policy support. At the same time, with the implementation of the regional center strategy, it is expected that the proportion of long-term courses will continue to increase. We expect the company's operating income from 2023-2025 to be 43.29/49.82/5.781 billion yuan respectively, a year-on-year increase of 13.34%/15.09%/16.05%, and net profit of 4.
45/6.47/839 billion yuan, a year-on-year increase of 21.51%/45.20%/29.79%. The corresponding EPS was 0.20/0, respectively.
30/0.39 yuan, covered for the first time, given a “buy-B” rating.
Risk warning: Market competition is intensifying, the number of new students enrolled falls short of expectations, macroeconomic growth falls short of expectations, campus expansion falls short of expectations, etc.