Huatu Shanding plans to rely on Huatu Education-related assets to expand its vocational education business: Huatu Education was founded in 2001, mainly provides recruitment, examination and training services, and is one of the leading vocational education and training companies in China.
In 2019, Huatu Education acquired 30% of the shares of the listed company Shanding Design (now renamed Huatu Shanding). In 2023, Huatu Shanding obtained the right to use Huatu Education-related assets free of charge to expand new vocational education businesses, including civil service recruitment, public institution recruitment, and training services for medical and health system recruitment and qualification examinations. Huatu Education mainly focuses on in-person courses, accounting for over 90% of revenue in 2017, of which civil servants and public institutions accounted for about 70% of the total revenue. In 2022/2023Q1-Q3, Huatu Education's revenue related to Huatushan's new business was RMB 21.03 billion, with gross margin of 55%/59%, respectively. Revenue and profitability recovered significantly.
The training industry is in high demand, and offline provides full-process services for the ****rong market demand, leading differentiated competition. The market size of China's vocational examination and training industry was 16.3% CAGR from 2016 to 2021. Under the pattern of a small number of national leaders in the industry and a large number of local institutions, the concentration of the industry is low, with a CR5 of 22.1%. Leading companies form differentiated competition in terms of service forms and product structures. 2) Promote non-agreement classes to consolidate the advantages of offline training. Base class products are updated and iterated to consolidate the advantages of offline examinations and training. The company mainly promotes non-agreement classes. The refund rate for agreement classes has decreased, and the revenue share of agreement classes may continue to decline in the future, and profitability is expected to increase. Huatu continues to explore other vocational education products and layout diverse businesses. 3) In the long run, the industry penetration rate is expected to increase. The penetration rate of China's recruitment examination and training industry is expected to increase from 27% in 2021 to 31% in 2026, and leading companies may enjoy this dividend with their brand advantage.
Profit prediction and investment rating: As a leading vocational education leader that has been deeply involved in public examination training for 20 years, Huatu Education has established a brand advantage by providing training course products and full-process consulting services as the main form of offline teaching. The profitability of Huatu Education may continue to improve, and it is expected to benefit from continued strong demand in the examination and training market in the future. Huatu Shanding will carry out non-academic vocational education business through free use of intangible assets related to Huatu Education. If the new business develops smoothly and maintains a good business trend, it may contribute to revenue and profit growth in the future. Since the progress and performance of the new business are reflected in uncertain time points on the reporting side, we forecast the original architectural design-related business. The net profit of Huatu Shanding's mother from 2023-2025 was 0.02/0.07/013 billion yuan, which was covered for the first time to give it a “buy” rating.
Risk warning: risks such as new business layout progress falling short of expectations, policies and supervision, and increased competition