Financial pressure gradually eased, and internal operations gradually ushered in an inflection point
As a leading company in the industry, China Public Education was affected by the competitive landscape during the pandemic, and revenue and profits declined significantly. Since the fourth quarter of '22, the company has actively adjusted its product structure, shifting from scale to efficiency, and the refund problem has continued to be mitigated. We expect the company's business to resume endogenous growth in 24. We expect 23-25E revenue to be 33.85/44.19/5.323 billion yuan, and net profit to mother of 336/687/1,094 million yuan. Comparable company Wind agreed to expect 24E PE to be 30.60x. Considering that the company has deep brand accumulation and channel advantages, profit flexibility is expected to be released relatively quickly after the inflection point of operation is reached. 40 x 24E PE is given a target price of 4.46 yuan, giving it an “increase in weight” rating.
The industry has maintained a high level of prosperity, and the number of applicants for the national examination has increased
The civil service and public institution examinations have maintained a high level of popularity in recent years. The number of applicants for the national examination was 39,600 (yoy +6.7%), of which 2.252,000 (yoy +48%) actually participated in the national examination. The reference rate was about 86.2% (previous value 78.3%). Against the backdrop of a steady, moderate increase in the total number of applicants for the national examination, or the extension of student study time, lay the foundation for subsequent provincial examinations. We expect the industry's overall participation rate and customer unit price to gradually increase under admission pressure. With the gradual withdrawal of the full refund agreement program, the profitability of leading companies is expected to return to the right track.
The company's product structure adjustment was completed, and the financial pressure was gradually relieved
In the past 20 years, the Chinese Public Education Written Examination has failed to complete all of its retired products, which has had a negative impact on the healthy growth of the company's business. Over the past 23 years, the company has gradually completed product restructuring. Judging from the course samples we have compiled, the overall refund rate in the industry has declined. Take the Liaoning campus as an example. For 44/60 days, the expected customer unit price for CCG offline is 1.1/14,000 yuan, and the refund rate for the written exam is 43%/47%. The company gradually relieved financial pressure through external financing. In the second half of '23, the company borrowed no more than 1.8 billion yuan from Caixin Trust to supplement the company's working capital. It is expected that the backlog of student refunds will gradually be alleviated.
Cost reduction and efficiency results were implemented, and recovery profits were achieved in the first three quarters
Facing changes in the external market environment, the company strengthened its cost reduction and efficiency strategy. The number of teachers 23H1 was 5,196 (yoy -42.2%), and the number of teaching outlets (excluding refunds) declined 76%/65%/55% year-on-year, respectively. Actual receipt estimates were lower than the apparent decline, which mainly reflected the company's gradual completion of refund work. Combining stock contract liabilities and fresh receipts, the first three quarters confirmed revenue of 2.67 billion yuan (yoy -31.5%), operating profit of 296 million yuan, net profit to mother of 242 million yuan, and profit recovery.
Risk warning: the increase in enrollment and customer unit prices fell short of expectations; fluctuating demand for recruitment examination training; risk of refunds; loss of core talent.