2023 results are largely in line with market expectations
The company announced its 2023 results: revenue of 759 million yuan, up 15.6% year on year, basically in line with market expectations, mainly due to steady growth in the higher education business, live streaming e-commerce and artist agents driving the performance of the entertainment and live streaming e-commerce segment; after adjustment, net loss of 0.17 million yuan was converted year on year, which was basically in line with market expectations, mainly due to increased costs in higher education business and increased impairment losses in the film and television production investment business.
The company announced the payment of a special dividend of HK$0.06 per share for the year 2023 (approximately HK$97 million in total).
Development trends
The higher education business remained steady, and the live e-commerce business started well. In 2023, the company's revenue increased 15.6% year on year to 759 million yuan. By sector: 1) Higher education business: Revenue increased 5.6% year over year to 593 million yuan, mainly due to the increase in average tuition fees, accommodation expenses and the number of students enrolled. Among them, undergraduate course tuition and accommodation expenses increased 12.7% year over year to 40 million yuan. The increase in tuition fees for 2023/2024 students (about 5,000 yuan per capita increase) clearly boosted revenue; 2) Film and television business: revenue of 85 million yuan, mainly from “Lady's Character”, which declined year-on-year. 3) Live e-commerce and artist brokerage: The total revenue for 7 months during the reporting period was 81 million yuan. The company and the core members of Qi Wei's team jointly invested in Huaxia Entertainment, and the company accounted for 70% of the equity. We expect the company's revenue to grow by a high number of units to 821 million yuan in 2024 as the higher education business remains resilient and emerging businesses continue to grow.
Significant depreciation in the film and television sector has dragged down performance, and the subsequent impact is expected to be eliminated. In 2023, the company's gross profit margin was 36.6%, down 11.7ppt year on year, of which: 1) Higher education business gross profit margin was 57.0%, down 3.8ppt year on year, mainly due to increased teacher salaries and campus maintenance costs in the higher education business. 2) The gross profit margin of the entertainment and live streaming e-commerce business is -36.4%, mainly due to increased impairment losses in the film and television production and investment business. In 2023, the film and television sector estimated a significant impairment of 241 million yuan, mainly from the movies and TV dramas “White Feather” and “Pentium Era II”.
According to management performance sharing, due to reasons such as high uncertainty in the current film and television technology industry, slow payments, and falling procurement prices, etc., the company no longer plans to invest in the film and television business in the future. The risk and amount of impairment may decrease in 2024, and the related impact is expected to gradually be eliminated.
The company's strategy is steady and seeking change. 1) Strengthen vocational education and promote the integration of maternity and education. We believe that students and teachers from the company's schools have a synergy advantage with the e-commerce live streaming business in terms of media art. At the performance conference, the company stated that it plans to invite more leading anchor teams to join the training team as mentors to improve students' professional skills; 2) Continue to consolidate the live e-commerce business. The company is focusing on establishing cooperative relationships with more leading anchors and well-known influencers, creating a “live streaming +” content matrix, and promoting the maturity of the second growth curve.
Profit forecasting and valuation
Keep the 2024 revenue forecast unchanged; increase the adjusted net profit for 2024 by 11% to 243 million yuan, considering that the impact of impairment on the film and television business is expected to ease; introduce 2025 revenue and adjusted net profit forecasts of 880 million yuan and 280 million yuan. Maintaining a neutral rating, maintaining a target price of HK$1.1 (corresponding 6.5 times the adjusted price-earnings ratio in 2024, currently trading 5 times), corresponding to 39% upward space.
risks
Higher education policy risks; acquisition progress falls short of expectations; live e-commerce business risks.