Incidents:
On January 24, 2024, the company announced FY2024Q2 results, achieving revenue of US$870 million, yoy +36%, non-GAAP net profit of US$50 million, yoy +182.6%.
Investment highlights:
The study abroad business grew and repaired, and the expansion of new businesses led to high revenue growth on the revenue side. FY2024Q2 achieved net revenue of US$870 million, yoy +36%. By business, revenue from study abroad consulting business yoy +32%, overseas exam preparation business yoy +47%; domestic exam training business yoy +43% for adults and college students; and yoy +68% from new business. Driven by supply clearance and demand recovery, the study abroad business maintained a high growth rate. The number of applicants for new businesses such as non-subject tutoring and smart hardware increased, and the retention rate increased, and growth was strong.
On the gross profit side, FY2024Q2's gross profit was US$447 million, with a gross profit margin of 51%, an increase of 4 pcts over the previous year. The company gradually absorbed the impact of the double decline, and gross margin returned to a stable range.
On the cost side, FY2024Q2 generated management expenses of 270 million US dollars, yoy +30%, a management expense ratio of 31%, a year-on-year decrease of 2 pcts; sales expenses were 150 million US dollars, yoy +62%, and the sales expense ratio was 18%, an increase of 3 pcts year-on-year.
On the profit side, FY2024Q2's operating profit was US$21 million, turning a loss into a profit; non-GAAP operating profit of US$51 million, yoy +212.2%, and the non-GAAP operating margin reached 5.9%, up 3.3 pcts year on year, up 1.2 pct from FY2020Q2; non-GAAP net profit of 50 million US dollars, yoy +182.6%, net profit margin 5.8%, up 3 pcts year over year.
On the balance sheet side, as of FY2024Q2, the company's cash and cash equivalents were US$1.94 billion, yoy +89%, term deposits of US$9.3 billion, short-term investments of US$1.57 billion, deferred revenue of US$1.64 billion, yoy +44%.
Management expects FY2024Q3's total net revenue to be US$1.07 to 1.09 billion, yoy +42% to +45%. Judging from the historical revenue situation, Q2 is a low season for traditional businesses such as overseas travel and high school, while FY2023Q3 has a small base. We expect FY2024Q3's revenue to achieve year-on-month and sequential growth; strong development of new businesses will also drive revenue growth.
Teaching outlets continue to expand, and enrollment in new businesses is growing strongly.
By the end of the FY2024Q2 period, the total number of the company's schools and teaching centers was 843, an increase of 135 over the previous year, and an increase of 50 over the previous year. The increase all came from teaching centers. The expansion of the number of teaching outlets provided support for the development of the company's main business and new business. At the same time, the company continued to invest in maintaining the OMO system, combining online and offline to support the recovery of the main business and the expansion of new businesses.
FY2024Q2's new business developed rapidly and contributed to significant profits. There are about 60 cities with non-subject tutoring services, with 786,000 registrants, yoy +64.8%, and QoQ +79.5%. The number of active paying users of smart devices reached 180,000, YOY +67.6%, and the QoQ remained flat.
Profit forecasts and investment ratings:
The company's stock business is resilient and innovative business is growing strongly. As a leading enterprise, it is leading the transformation of the entire industry, and its profitability is rapidly recovering. Considering the company's accumulated brand reputation, operating experience, and sufficient capital in the education and training industry, we are optimistic about the transformation of the company's new business and the restoration of traditional business performance. It is expected that FY2024-2026 will achieve GAAP net profit of 3.9/54/7.2 billion, corresponding to PE 34/24/18x, maintaining a “buy” rating.
Risk warning:
New business development falls short of expectations, operating indicators fall short of expectations, seasonal fluctuations, management risks, loss of core personnel, public opinion risks, regulatory policies, platform policy changes, public health events, brand reputation risk, downward valuation center, management-related risks, geopolitical and international relationship factors affect study abroad business, etc.