Revenue for 2023 slightly exceeded our expectations, and adjusted net profit met our expectations
The company announced its 2023 results: revenue of 1,806 million yuan, +16.6% year over year, exceeding our expectations by 2%, thanks to higher education business revenue growth that was better than expected; adjusted net profit of 429 million yuan, +12.6% year over year, basically in line with our expectations. On March 26, 2024, the company announced that its wholly-owned subsidiary Neusoft Ruixin had signed a share transfer agreement with Neusoft Holdings and Neusoft Healthcare at a consideration of RMB 81 million; the announcement was to distribute dividends of HK$0.366 per share (total HK$236.5 million) at the end of 2023. The dividend ratio increased from 25% in 2022 to 50%, corresponding to a dividend rate of 12% (as of today's close).
Development trends
The core higher education business grew steadily, and the two wings of the business deepened. In terms of core business, full-time higher education revenue in 2023 was 1,453 billion yuan, +24% year-on-year (due to both increases in the number of students enrolled and tuition fees per student), accounting for 81% of revenue. By the end of December 2023, the number of students enrolled in the Group's three schools was 56,800, +7.5%; in the 23/24 school year, the total number of places in the three schools in Dalian, Chengdu and Guangdong reached 19,500, +14% over the same period; the total number of new students registered at the three universities exceeded 18,000. In terms of the two wings of the business, revenue from the education resource export business in 2023 was +5% to 190 million yuan, and the revenue from the continuing education business was +8% to 160 million yuan. Relying on the characteristic 4S product service system, the company sold 112 sets of educational teaching platforms and 19 sets of training room products and supporting teaching content to 104 colleges and institutions in 2023; carried out about 280 industrial college and professional co-construction projects with 62 colleges and universities, covering about 24,000 students. At the profit level, in 2023, the company recorded a gross margin of 48%, +5ppt year over year; adjusted net profit to mother was +13% YoY to 429 million yuan, corresponding to an adjusted net interest rate of 24%.
The acquisition created a second growth curve for healthcare. According to the announcement, the target company Neusoft Healthcare includes a private non-profit cardiovascular hospital (which has a deep cooperative relationship with a top three hospital in Dalian) and a private for-profit second-level specialist dental hospital; in 2023, the target company had revenue of 12.8 million yuan, an EBITDA loss of 8.6 million yuan, and is expected to be combined in April-May 2024. We believe that the company's acquisition of Neusoft Healthcare will help it build a new integrated development ecosystem of “education+technology+medical care”. The company stated at the performance meeting that this acquisition will not change the company's main education business; considering that the combination of the digital economy and geriatric education and health care fields has the characteristics of high returns and high certainty, the ecosystem is expected to hedge the impact of demographic changes on the academic education business in a medium- to long-term strategy, and open up a second growth curve for the group in the field of geriatric health care on the basis of full reuse of the Group's existing campuses, science parks, and teachers.
Profit forecasting and valuation
Keep the 2024 revenue forecast basically unchanged; reduce the 2024 adjusted net profit by 21% to 409 million yuan, taking into account that the acquisition company may still record losses and the combined effects; and introduce the 2025 revenue/adjusted net profit forecast of 2.19 billion yuan/452 million yuan. Maintain an outperforming industry rating and target price of HK$4 (corresponding to an adjusted price-earnings ratio of 5.6 times in 2024). The current stock price is trading at 4.3 times the 2023 adjusted price-earnings ratio, corresponding to 30% upward space.
risks
Enrollment falls short of expectations; education industry policy changes; M&A progress falls short of expectations.