Introduction to this report:
The results of the 2023 annual report fell short of expectations. Employee remuneration and marketing investment were ahead, and cost rates were under phased pressure; new recruitment gradually resumed, and revenue-driven profit recovery is worth looking forward to.
Summary:
The performance fell short of expectations, and the rating was “increased”. Considering the gradual resumption of new recruitment, there is still some pressure on the pre-profit side of marketing and faculty reserves in the short term. EPS forecast for 2024-2026 is 0.18/0.22/0.24 yuan, giving a 2024 15x PE valuation, with a target price of 2.70 yuan/2.93 HK$2.93. Looking at the company's long-term reliance on the brand, competition in the industry is expected to slow down, profit recovery is worth looking forward to, and maintaining the “gain” rating.
Performance summary: The company released annual results. In 2023, it achieved revenue of 3,979 billion yuan, an increase of 4.2% year on year, adjusted net profit of 281 million yuan, up 5.4% year on year. The performance was lower than expected. The decline in new enrollment during the pandemic dragged down, and the revenue side was still lagging; employee remuneration and marketing investment were in advance reserves, and cost rates were under phased pressure.
Auto repair and Omiki have increased in double digits, and new recruitment has gradually resumed. In 2023, 152,900 new trainers were added, up 13.8% year on year; the average number of trainees was 146,800, up 2.9% year on year.
By sector, in 2023, New Oriental Cooking/Xinhua Computer/Wantong Auto Repair/Omiche/Huaxin Zhiyuan/Delicious College achieved revenue of 18.65/7.44/8.47/3.31/0.38/0.49 billion yuan, with year-on-year changes of -1.4%/+0.3%/+18.0%/+12.4%/-13.0%/-12.8%; the three-year average number of trainers was 99,800/ +15.8%, and the proportion continued to increase.
Employee remuneration and marketing are put ahead of schedule, and cost rates are being pressured in stages. The company's gross margin fell 1.56pct to 47.96% in 2023, mainly due to a sharp rise in faculty and staff salaries and benefits; it is expected that the teacher-student ratio will improve as new recruitment steadily recovers. In terms of campus expansion, during the period New Oriental Cooking/Xinhua Computer/Wantong Auto Repair/ Huaxin Zhiyuan/Delicious Academy/Omandi -1/+2/-2/+2 campuses respectively. The company's expense ratio for the 2023 period was 43.3% /+0.46pct, and the sales/management/R&D/finance expense ratio changed year-on-year by -1.56/+1.28/ -0.13/ -0.59pct to 26.06%/13.30%/0.44%/3.50%, respectively. The increase in sales expenses was mainly due to the fact that in 2023, the Group hired professional consultants to design a new image for New Oriental Chef Panda to promote and consolidate the brand and launch advertising resources to recruit more new students; the increase in management expenses was mainly due to an increase in business activities such as travel and meetings. It is expected that as the income contributions of new students are gradually reflected, the cost ratio is expected to be gradually optimized.
Risk warning: changes in the industry pattern, increased market competition, risk of enrollment falling short of expectations, etc.