The 2023 results announcement was announced, and the transformation achieved positive results

In 2023, the company's revenue was 570 million yuan, up 41.9%; gross profit was 240 million yuan, up 72%; net profit to mother was 86 million yuan, up 58%; net profit after adjustment was 108 million yuan, up 98.5%.

In 2023, the company's non-academic quality courses and other revenue was 519 million yuan, an increase of 40.3%; revenue from academic education courses was 52 million yuan, an increase of 60.3%; the number of students enrolled in the company's non-academic quality courses was 239,000, an increase of 38%; the number of tutoring hours was 5.97 million, an increase of 39.5%.

As of the end of 2023, Xile Cash and Equivalents and Time Deposits amounted to $362 million, an increase of 21.2% over the same period, representing an increase in net cash inflows from operating activities. Contract liabilities (mainly tuition fees collected in advance) amounted to $276 million, an increase of 52% over the same period.

Thinking Le has actively promoted business transformation. Since the fall of 2021, it has launched various non-subject literacy courses, including courses such as scientific literacy, Chinese studies, logical thinking training, and Miowei International Literacy. Initial results have been encouraging. The literacy course has been highly recognized by students and parents. It combines learning and thinking, focusing on giving full play to children's subjective activism, enhancing deep thinking ability, and effectively satisfying children's all-round development.

The increase in performance in the current period was mainly due to (i) an increase in total coaching hours, which led to an increase in earnings, (ii) improved operational efficiency, and (iii) fair value returns on financial assets (while a fair value loss was recorded in '22).

The company actively seeks new business opportunities. Launching educational tourism business and international courses, the company will strengthen the business development of the company's “Music” brand, including quality education such as art, sports, painting, performance, calligraphy, scientific literacy, Chinese studies, logical thinking and international literacy, meet students' different needs, encourage the development of students' interests and strengths, so that children can achieve balanced development in the five areas of “morality, intellect, body, beauty, and labor”, promote their healthy growth and holistic development, and provide students with quality services.

The company will strive to promote all-round diversified development in the future, using the brand influence and reputation, as well as the management team's rich management experience and industry knowledge, to actively explore new opportunities in different fields and expand the revenue base. Furthermore, we will continue to strictly implement cost control measures, maintain steady cash flow, cultivate technology, and improve service quality and operational efficiency to support long-term development.

Raise profit forecasts and maintain “buy” ratings

Based on the company's 2023 results announcement, we raised our 24-25 profit forecast and gave a profit forecast for 2026. We expect the company's revenue for 24-25 to be 970 million yuan, 1.35 billion yuan (original value of RMB 950 million and RMB 1.29 billion respectively), and RMB 1.83 billion in 2026; adjusted net profit for 2024-25 will be RMB 141 million and RMB 191 million (original value of RMB 135 million and RMB 175 million); 2026 RMB 232 million, EPS was RMB 0.25 and RMB 0.34 per share in 2024-25 (original value was RMB 0.24 per share, RMB 0.32 per share), and RMB 0.42 per share in 2026. The corresponding PE for 2024-26 is 15/11/9X, respectively.

Risk warning: policy risk; new business risk; management risk; risk of rising operating costs; risk of the company's low market value in circulation;