The company announced its three-quarter report for 2023. There was a slight decline in revenue for the third quarter, while the profit side was under short-term pressure from rising sales and management expenses. Considering the slowing growth rate of the overall education information technology industry, we lowered the company's 2023-24 EPS forecast to 0.29/0.35 yuan (the original forecast was 0.50/0.64 yuan) and added the 2025 EPS forecast to 0.42 yuan, referring to the 2024 valuation levels of comparable companies in the industry (2.1 times PB for Siyuan, 2.2 times PB for Kangguan Technology, the same expectations for Wind Wind) and the company's valuation level for the past three years (1.7 times PB), we gave the company 1.7 times PB in 2024, corresponding to the target price 11 yuan, maintaining the “increased holdings” rating.
In 3Q23, the company's revenue declined slightly year-on-year, and profits were under short-term pressure due to rising expenses. 1) Revenue and profit:
3Q23 achieved revenue/net profit of $128/046 million, respectively -8.8%/-20.1% year-on-year, respectively, and 1-3Q23's cumulative revenue/net profit of $245/58 million, respectively; the company recorded an increase in revenue in the first half of the year, mainly due to the increase in the country's development of higher education and vocational education informatization. We judge that the decline in Q3 business revenue was due to a slowdown in the overall growth rate of the industry; 2) Gross profit and expenses: 3Q23's gross margin was 71.6% /+0.9 pct/ The management/R&D expense ratio is 17.7%/11.2%/16.7%, and the cost rate is +5.1/+2.6/+1.0pcts respectively. We judge that the sales expense ratio has increased sharply, and the main company's business activities have increased, and expenses such as company travel, exhibition advertising, and labor costs have increased.
Formally partnering with NVIDIA to help universities build digital assets. In September 2023, Huasheng Jingshi, a shareholding subsidiary of the company, formally established a cooperative relationship with NVIDIA. Based on NVIDIA's technical support and product services, Huasheng Jingshi will introduce Omniverse graphics technology and simulation products to accelerate the transformation of education technology, create high-level practical solutions for colleges and universities, provide advanced practical technical service support, and systematically promote “teaching” and “learning” to help colleges and universities successfully build digital assets.
The fully connected smart teaching platform has been upgraded to accelerate the digital transformation of education. In October 2023, Ovia, a wholly-owned subsidiary of the company, launched a fully connected smart teaching platform 2.5, which covers functions including quick start of mini-programs, full-process online evaluation, and AI classroom data analysis. It satisfies the four-level deployment structure of provinces, cities, districts, counties and schools, provides flexible deployment methods for public clouds, government clouds, and hybrid clouds, and can carry out customized development according to regional conditions, effectively promoting the deep integration of digital applications with education and teaching, helping all regions and schools accelerate the digital transformation of education.
Risk factors: Macroeconomic pressure; new business development falls short of expectations; digital transformation falls short of expectations; major raw materials have risen sharply, and industry growth has declined sharply.
Profit forecast, valuation and ratings: The company announced its 2023 three-quarter report. Revenue declined slightly in the third quarter, while the profit side was under short-term pressure from rising sales and management expenses. Considering the slowing growth rate of the education information technology industry as a whole, we lowered the company's 2023-24 EPS forecast to 0.29/0.35 yuan (the original forecast was 0.50/0.64 yuan), and added the 2025 EPS forecast to 0.42 yuan. Considering that the company's profit has fluctuated in recent years, and the declining industry growth rate and increased competition have caused great uncertainty about the company's profit level, referring to the 2024 valuation level of comparable companies in the industry (2.1 times PB for Siyuan shares, 2.2 times PB for Kangguan Technology, wind unanimity) and the company's valuation level for the past three years (1.7 times PB), we gave the company 1.7 times PB for 2024, corresponding to the target price of 11 yuan, maintaining the “increased holding” rating.