Net profit returning to mother is expected to increase 96%-125% year-on-year in '23

The company's net profit in 2023 was 135-155 million, up 96%-125%; of these, 23Q4 net profit was 0.19-0.39 million, and 22Q4 net profit was -021 million, a significant year-on-year increase; in 2023, it was 133-150 million, an increase of 87%-116%, of which 23Q4 net profit after deducting non-return mother was 0.18-0.38 million, and 22Q4 net profit after deducting non-return mother was -0.18 billion.

In 2023, the company will focus on the two major directions of smart testing and smart education. In terms of smart testing, the market layout was accelerated, and new products were launched to seize the market on the basis of upgrades and additions to the original products, and smart test orders increased dramatically; in terms of smart education, it provided accurate products to meet top-level planning and immediate business needs, and orders increased dramatically. In 2023, the company's two major business orders for smart testing and smart education both increased, leading to a significant increase in revenue and profit throughout the year.

The traditional business boom continues, and we are optimistic about 2024 order performance

2023 is not the last peak of education facility renovation; on the one hand, the boom is expected to continue in 2024; on the one hand, there is a demand for additions and upgrades; for example, online inspection products have entered the update cycle, and AI behavioral analysis has begun to be added to functions; products with low penetration rates such as fraud prevention and control and identity authentication products are expected to continue to be built; on the other hand, demand for new products will be released, such as the addition of new security gates for this year's college entrance examination.

Furthermore, in addition to college entrance examinations, standardized examination rooms will also be applied to more examinations such as secondary school entrance examinations and academic examinations as the admissions examination reform progresses.

Releasing English speaking AI products meet the pain points of demand and have great potential for development. Currently, the main large-scale AI applications released by the company are: AI Proposition Assistant, which improves proposition efficiency, links massive question banks, and satisfies high-quality original test questions and one-on-one teaching needs; AI English Learning Assistant, which conducts one-on-one oral exercises and personalized guidance with students through the 3D digital intellectual teacher's ability to recognize and guide the curriculum standards and provide personalized guidance to help students improve pronunciation and grammatical accuracy; AI English essay correction; AI career assistant; AI virtual application development.

The company itself has a self-developed large-scale model, the “Linggu Education Model”, which is pre-trained based on an open source model. The “Linggu Education Model” currently has 10 billion level parameters, and has completed secondary pre-training of 10 billion token training data through special data in the education field. Special scenarios for 10 million token instruction data are fine-tuned, and it has stronger adaptability, higher accuracy, and better performance than the general model in education scenarios.

Physico-chemical laboratory products are being promoted faster, and the market space is large. Chemical laboratory products are mainly used for teaching, evaluation and management of physico-chemical experiments in the secondary school entrance examination and middle school; currently, they are still in the early stages of construction, and large-scale trials and construction are expected to be carried out in various provinces and cities in the future.

The market space for physico-chemical laboratories is estimated to be between 10 billion and 100 billion dollars. At present, the company has completed pilot projects and established regional benchmark projects in some provinces to establish advantages for subsequent large-scale testing and promotion.

Adjust profit forecasts to maintain “buy” ratings

The company's smart testing business requires increased product types and upgrades, and increased application scenarios. Companies in the field of smart education have already laid out and occupied positions in smart sports, English speaking, etc., and have reached a stage of rapid market growth; and with the launch of new AI products, it is hoped that the revenue potential of C-side products can be expected in the future. Considering the company's performance forecast, we slightly adjusted our 23-year profit forecast. We expect the company's net profit to be 1.40/2.50/330 million yuan respectively (previous values were 1.60/2.50/330 million yuan, respectively), EPS was 0.35/0.63/0.83 yuan/share, respectively, and the corresponding PE was 37/21/16X, respectively.

Risk warning: Risk of declining macroeconomic sentiment; increased risk of industry competition; repeated impact of the pandemic on project delivery; risk that policy implementation falls short of expectations; gross margin fluctuates with the business structure; performance forecasts are only preliminary estimates. The specific financial data is based on the company's 2023 annual report.