Event: Honghe Technology announced its 2023 performance forecast. The company expects to achieve net profit of 320 million yuan to 340 million yuan, YoY -18.1% to -13.0%; after conversion, Q4 achieved net profit of 0.2 billion yuan to 40 million yuan in a single quarter, and YoY +100.6% to +264.5%. We believe that with the improvement of the domestic economic environment, the company's domestic education hardware business is expected to recover, and the after-school service business is expected to continue to be implemented.
Revenue is expected to be stable in 2023Q4: In the context of tight domestic local government budgets in 2023, the education tablet market is fiercely competitive, and the sales price of education tablets is under great pressure.
We judge that the company's domestic education business revenue declined year-on-year in 2023Q4. Overseas, the company insists on leveraging core advantages such as localized operation and integrated production and research layout to accelerate the development of the North American, European and Asia-Pacific markets. According to information exchanged on the investor interactive platform, the company won the bid for 16,000 units in the European market in the second half of 2023. We judge that the company's overseas business continued to grow rapidly in 2023Q4.
2023Q4's performance grew rapidly: 2023Q4's net profit to mother was +0.1 billion yuan to 0.3 billion yuan year-on-year, and YoY +100.6% to +264.5%. We believe that the rapid growth in Q4's performance is mainly due to an increase in the share of overseas business with higher profit margins, which has led to an increase in the company's overall profitability. For reference, the overall net interest rate of the 2023H1 company was 10.5%, and the net interest rate of the US subsidiary was 17.6%.
Acquisition of minority shareholders' shares in the US New Line: In October 2023, the company's board of directors agreed to buy 25% of the shares held by the minority shareholders of the overseas holding subsidiary of the US New Line and pay no more than US$41.25 million in cash consideration. After the transaction was completed, the company's shareholding ratio in the new US line was changed from 75% to 100%. In November, the company's shareholders' meeting passed a bill to purchase minority shareholders' shares in the holding subsidiary. We believe that the company's acquisition of minority shareholders' shares in the US New Line is conducive to integrating the company's resources and improving profitability.
Investment advice: Honghe Technology is a leading provider of educational informatization products and solutions in China. With the improvement of the domestic economic environment, the company's domestic education hardware business is expected to recover, and the after-school service business will continue to be implemented. Benefiting from the overseas education informatization process, the company's overseas independent brand business is expected to achieve rapid growth. The company's EPS from 2023 to 2025 is expected to be 1.42/1.66/1.95 yuan, maintaining a buy-A investment rating, and giving a dynamic price-earnings ratio of 20 times in 2024, which is equivalent to a six-month target price of 33.16 yuan.
Risk warning: Raw material prices have risen, exchange rates fluctuate, and industry competition has intensified.