The company announced its 2023 results. In 2023, we achieved revenue of 570 million yuan, +41.9% year on year, net profit of 90 million yuan, +58.0% year on year, adjusted net profit of 110 million yuan, +98.5% year on year.
The adjustments include an equity incentive fee of 8.1 million yuan and a loss of 13.9 million yuan from the live e-commerce business.
Of this, 2023H2 had revenue of 320 million yuan, +51.6% year-on-year, and adjusted net profit of 61 million yuan.
The business structure was transformed, and the revenue scale recovered at an accelerated pace. After the “double reduction”, the company actively carried out business restructuring. In 2023, revenue for non-academic quality courses/tutoring courses was 52/50 million yuan, +40.3% over the same period. Quality education grew rapidly as a key direction of transformation, and tutoring course operations improved markedly. Furthermore, live e-commerce services that were in a state of loss were promptly shut down at the end of 2023.
Operational efficiency has improved, and profit levels have increased significantly. After business growth got back on track, the company's operating efficiency improved markedly. In 2023, the company's gross margin was +7.3pp to 41.8% year on year, and the sales/management expenses ratio was 2.0%/21.5%, respectively, +0.8/1.0pp. Mainly affected by the increase in live e-commerce expenses and personnel expenses, the adjusted net interest rate was 18.9%, +5.4pp year over year.
The diversified development of quality education can be expected, and the market share is expected to increase rapidly. After the “double reduction”, the company rapidly transformed and focused on the Shenzhen market. Since 2022, the volume and price of quality courses have risen sharply, accounting for about 90% of revenue in 2023, which is the core growth driver. In addition, the company launched educational tourism business and international courses during the year. Diversified development supports high growth and sustainability. Benefiting from the optimization of the competitive landscape of the industry, the company's market share in the Guangdong market is expected to increase rapidly.
Profit forecasting and investment advice. The company is estimated to have adjusted net profit of RMB 1.5/1.9/260 million in 24-26 years. Considering business growth and leading position in the region, the company will be given a 24-year 22x PE valuation, with a reasonable value of HK$6.20 per share (HKD/RMB 0.9235), with a “buy” rating based on comparable company valuations.
Risk warning. Changes in industry policies, falling short of expectations in enrollment, and risk of a decline in the birth population.