Core viewpoints

23Q3 Company's revenue and net profit increased by 26.2% and 41.3% respectively, maintaining a good growth trend, mainly due to the high boom in the construction of examination room for college entrance examination and the development of intelligent education business. It is expected that the revenue of cheating prevention and control system and security inspection gate will increase rapidly, and intelligent education and other projects will gradually land in the second half of the year. In October 2023, the company released the "Lingyu Education Model" and three major applications,"Physical and Chemical Experiment AI Solution","Physical Education AI Solution" and "English Machine Test AI Solution". Looking forward to the follow-up, the basic market of recruitment business is expected to maintain good growth under favorable policies, AI+ education and other application business models are gradually clear, and it is expected to contribute to the incremental part of performance.

Event

The company released the third quarterly report of 2023: the revenue of the company in Q1-3 of 2023 was 436 million yuan/+24.4%; the net profit of parent company was 116 million yuan/+29.4%; the net profit of parent company after deduction of non-profit was 113 million yuan/+28.4%; the basic earnings per share was 0.29 yuan/share, with a year-on-year growth of 29.4%. Net cash flow generated from operating activities is RMB 92 million/+206.4%.

Brief comment

Under the high boom of examination room construction + intelligent education business development, 23Q3 revenue and performance maintained a good growth trend. 23Q3 company revenue 131 million yuan/+26.2%, parent net profit 0.28 million yuan/+41.3%, deduction of non-net profit 0.27 million yuan/+45.2%, maintain a good growth trend, mainly due to: 1) policies to promote the intelligent construction of traditional examination rooms, standardized examination equipment is expected to maintain a high boom, cheating prevention and control system, security doors and other revenue rapid increase; 2) The Company's business expansion in the field of smart education has been continuously promoted, and the bidding procedures and project implementation have been carried out in the second half of the year.

Profitability gradually recovered, cost end control thickened performance. The gross profit margin of the company was 52.4%/+0.88pct in 23Q1 -3 and 50.9%/+10.77pct in 23Q3. 23Q1-3 Sales, management and R & D expense ratios were 11.46%/-0.97pct, 9.85%/+2.17pct and 7.33%/-1.55pct, and the increase in management expenses was mainly due to equity incentive expenses. 23Q1 -3 net margin was 26.64%/+2.18pct, 23Q3 net margin was 21.18%/+3.39pct.

The "AI+" strategy was comprehensively upgraded. In October 2023, the "Lingyu Education Model" and three major applications "Physical and Chemical Experiment AI Solution","Physical Education AI Solution" and "English Machine Test AI Solution" were released. The Company held the "AI+" strategy and new product launch conference on October 21, 2023 to showcase the "Lingyu Education Large Model". At present, Lingyu has tens of billions of parameters, and through special data in the field of education, it has completed the secondary pre-training of tens of billions of Token training data, and the special scene fine-tuning of tens of millions of Token instruction data. In addition, the company released 3 AI+ education products, including: 1)"Physical and Chemical Experiment AI Solution": based on multi-perspective, pixel-level image tracking and recognition capabilities, as well as craftsman level hardware terminal equipment, for junior high school physical and chemical experiment examination and teaching scene empowerment, is expected to be under the reform plan To G field just needed products, local "new high school entrance examination" program introduced, strengthen physical and chemical experiment operation capabilities, is expected to be promoted nationwide; 2) AI Solution for Language Machine Test: Based on speech recognition and natural language processing ability, AI English learning assistant Xiaoling teacher's course standard cognition and guidance ability helps students realize personalized learning and guidance. Among them, Beijing, Shanghai and other places add English listening and speaking machine test and oral test in the college entrance examination link. After subsequent nationwide promotion, it is expected to be applied in 2B, 2G and 2C terminals;3) AI Solution for Physical Education: Based on its own "AI Eagle Eye Technology", it breaks the time, space and personnel restrictions of traditional physical education, and provides professional empowerment around the multi-dimensional and full-scene of "teaching, learning, training, testing, evaluation and competition". The AI solution for physical education is mainly applicable to the needs under the reform of the "new high school entrance examination". Under the new high school entrance examination, the sports scores are improved and more attention is paid to process management. AI+ sports helps to provide AI analysis results for students 'sports process.

Looking forward to the follow-up, the basic market of recruitment business is stable, and it is expected to maintain good growth with favorable policies. The application business model such as AI+ education is gradually clear, which is expected to contribute to the incremental part of subsequent performance. 1) With the continuous implementation of policies such as education evaluation reform and examination enrollment system reform in the new era, standardized examination points are used in more and more examination types, examination safety, fairness and justice receive more and more attention, the demand for standardized examination point equipment increases, and the company's recruitment business is expected to maintain steady growth, such as intelligent security inspection gate, cheating prevention and control, identity authentication, online inspection, etc.; 2) Under the strategy of "new infrastructure for education", the demand for smart education construction will be directly promoted, and the commercial application of AI+ education products will provide flexibility for subsequent performance growth.

Investment suggestion: It is estimated that the company's revenue from 2023 to 2025 will be 634 million yuan, 866 million yuan and 1.144 billion yuan, with year-on-year +53.7%,+36.5% and +32.1%. The net profit of parent company will be 1.48 million yuan, 1.99 million yuan and 262 million yuan, with year-on-year +114.3%,+34.5% and +31.7%. The corresponding PE will be 41X, 31X and 23X, maintaining the "Buy" rating.

Risk tips: 1) Risk of delayed implementation of policies: In recent years, education informatization has been written into resolutions, plans and documents of important party and national conferences for many times, and incorporated into the strategic deployment of national education modernization. Policy dividends will continue to be released, but there is still a risk that policies fall short of expectations. 2) High degree of industry dependence risk: Most of the end customers of the company's products are educational management institutions at all levels and various schools nationwide, and the main business has a high degree of dependence on the development of education informatization industry. Although the company's main products such as online inspection, emergency command, direct recording and broadcasting can also be applied to other sub-fields of education informatization, such as distance education, campus security, finance, transportation, public security and other fields, if the future national macro policy or education informatization related policies change, it will lead to a recession in the education informatization industry or a slowdown in the construction speed of informatization;3) Gross profit rate fluctuation risk: The Company's business includes two business segments, namely smart examination and smart education, which are affected by factors such as fluctuations in raw material prices, resulting in fluctuations in gross profit margin.