Chinese public education: leading domestic vocational education and training in all categories. The company's predecessor was founded in 1999 and restructured and listed on the Shenzhen Stock Exchange in January 2019. The company targets hundreds of millions of knowledgeable people in China. Its main business spans three major sectors, including public service job recruitment examination training, academic upgrading, professional qualifications and vocational ability training, and provides more than 100 categories of comprehensive employment training services. By the end of June 2023, the company had 1,035 direct outlets covering 319 prefecture-level cities across the country, forming an enterprise platform driven by vertical integration and rapid response capabilities, and became the leading institution for all types of vocational education and training in China.

The recruitment and training market is in high demand, with a market size of over 30 billion yuan in 2021: According to Frost & Sullivan, in the vocational examination and training market, the recruitment examination and training market reached 30.5 billion yuan in 2021, of which the public officer/public institution/teacher recruitment market reached 121/116 billion yuan respectively. It is expected to grow to 50.5 billion yuan in 2026, and the CAGR will reach 10.6%. The number of recruitment/registrants for the 2024 national examination is high, and demand for training is strong. The number of people recruited for the 2024 national examination was 39,600, +7%; the actual reference number reached 2.252,000, +48% over the same period; the ratio of the number of people taking the exam to the number of recruitment plans was about 57:1.

The refund issue progressed smoothly, and cash flow recovered: After the “refund” problem occurred, the company took the initiative to adjust the product structure to ensure actual receipt, and reduced the number of personnel at the network. The number of branches directly managed by the company and the number of employees was reduced from 1,859 households and 453,000 people at the end of June 2021 to 1,035 households and 130 thousand people at the end of June 2023. Expenses for the period were reduced from 470 million yuan/month in the 2020Q3 to 130 million yuan/month in 2023Q3, and the pressure on cash payments eased somewhat. On September 6, 2023, China Public Education signed a “Trust Loan Contract” with Hunan Caixin Trust (Hunan Caixin is currently the third largest shareholder of the company). The company borrowed no more than 1.8 billion yuan from Caixin Trust to supplement the company's working capital and resolve the stock refund issue as soon as possible. After the “refund” issue is resolved in depth, the number of trainees and operating performance of the company is expected to recover further.

Investment advice: As a leading domestic vocational education and training leader in all categories, China Public Education (002607.SZ) attaches importance to channel construction and R&D investment to build brand barriers. The results of the previous two years were dragged down by refund issues. The company promoted refunds in an orderly manner through loans from multiple shareholders and re-established its brand image. Demand for training in public service examinations is increasing, and the number of applicants for national examinations etc. continues to rise, and the company is expected to benefit as an industry leader. We forecast that the company's net profit due to mother in 2023-2025 will be 393/8.25/1,309 million yuan, respectively, and the corresponding PE valuation will be 61.8x/29.5x/18.6x, respectively. The first coverage gives an “gain” rating.

Risk warning: Competition in the industry intensifies, refund progress falls short of expectations, and changes in regulatory policies.