Incident Overview: In 2023, the company achieved revenue of 570 million yuan/ +42%; gross profit margin of 41.8% /+7.3 pct; net profit to mother of 86 million yuan/ +58%; adjusted net profit of 108 million yuan/ +98.5% (the previous performance forecast was not less than 100 million yuan). The adjustments were mainly share option benefit expenses and net loss from the live e-commerce business.

The increase in the company's performance was mainly due to (i) an increase in total coaching hours, which led to an increase in earnings; (ii) the Group's continued efforts to improve operational efficiency; and (iii) fair value returns on financial assets (which recorded a fair value loss in '22).

By business: Literacy courses achieved annual revenue of 520 million yuan/ +40% in 2023, 5.97 million yuan/ +39.5% of relevant tutoring hours; revenue from academic education courses was 51 million yuan/ +61%.

The number of students and class hours increased significantly: the total number of enrolled students was 260,000/ yoy +40%, and the total number of tutoring hours was 6.55 million hours/yoy +41%.

Contract liabilities increased significantly: As of the end of 2023, Xile's cash and equivalents and time deposits were $362 million, up 21.2% from the same period, mainly due to 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.

Profit forecast and investment advice: The company is one of the K12 leaders in South China. After the double reduction, the company actively transformed and launched a non-disciplinary literacy course in the fall of 2021. As the business gradually matures, the area and number of the company's outlets are expected to expand, and its market share is expected to continue to increase. We expect the company's net profit to be 1.4/2.0/270 million yuan in 2024-2026. The current stock price corresponds to PE15/11/8X, giving it a “recommended” rating.

Risk warning: policy risk, risk of a company's low market value in circulation, increased risk due to industry competition, etc.