Driven by the two major businesses of standardized testing and smart education, profits increased dramatically by 90.05%. In 2023, the two major business areas of smart testing and smart education worked simultaneously, and orders both achieved significant growth. The company achieved a 46.47% increase in revenue of 604 million yuan and a 90.05% increase in net profit of 131 million yuan. With the continuous implementation of policies such as English machine testing, English for secondary school entrance examinations, sports evaluation, and digitization of education, the company's smart education business revenue of 117 million yuan increased by 55.20% in 2023. Furthermore, the state called for strengthened radio signal shielding equipment at test sites and encouraged all regions to actively equip 'smart security gates'. In 2023, revenue from the smart testing business increased by 56.24% by 420 million yuan.

Gross margin fluctuated slightly by 2.06 pct. The fee control effect was significant, and the net interest rate increased 4.97 pct. YoY to 21.68%. The company's consolidated gross margin in 2023 was 51.75%, down 2.06pct year on year. The main reason is that the gross margin of the standard examination business declined by 4.33 pct to 55.60% in the short term, and the gross margin of the smart education business increased by 0.06 pct., and remained stable. In terms of cost ratio, sales expense ratio and R&D cost ratio decreased by 3.02 and 2.97 pct, respectively. , the management cost ratio increased slightly by 1.38 pct. The cost growth rate was lower than the revenue growth rate, and the fee control effect was remarkable. The net interest rate in 2023 increased 4.97 pct. year-on-year to 21.68%.

Release employee stock ownership plans to fully motivate employees. The company announced the 2024 employee stock ownership plan. The share source is 2.5637 million shares of common stock repurchased by the company's special repurchase account, accounting for 0.64% of the company's total share capital at present. At the performance assessment level, the revenue for the first unlocked period 2024 was not less than 110% of 2023, or the net profit for 2024 was not less than 105% of 2023. In the second unlocking period, the cumulative net profit value for 2024-2025 was not less than 215% of the 2023 base. The third unlocking period is based on the company's 2023 net profit, and the cumulative net profit value for 2024-2026 is not less than 330% of the 2023 base.

A powerful model with 10 billion parameters was released, and abundant channel resources provided an entry advantage for C-side AI products. The release of the Linggu Education Model and AI series products was completed in 2023. Currently, Linggu has parameters at the level of 10 billion, and has completed the second pre-training of 10 billion token training data through special data in the field of education. The company has abundant channel resources, and its products cover more than 500,000 classrooms. At the same time, it has nearly 3,000 partners across the country. The sales channel network has sunk to every district and county, which is expected to provide an entrance advantage for C-side customer expansion.

Profit forecast: Revenue is expected to increase 31.93%, 28.62%, and 24.45% by 2024-2026 to 7.97, 10.26, and 1.276 billion yuan; net profit to mother of 1.88, 2.49, and 317 million yuan will increase by 43.80%, 32.12%, and 27.28%; EPS (latest diluted) will be 0.47, 0.62, and 0.79 yuan respectively, giving a “buy” rating.

Risk warning: AI technology iterations fall short of expectations; financial constraints; profit forecasts fall short of expectations.