Incident: The company released its annual report for the year 23 and the quarterly report for '24, and achieved revenue of 250 million yuan, an increase of 131.3%; achieved revenue after deduction (revenue generated by receiving commissions from related parties to deliver stock courses) of 140 million yuan, an increase of 34.4%; realized a net loss of 90 million yuan to the mother, a profit of 0.1 billion yuan for the same period last year; achieved a net loss of 110 million yuan after deduction, a profit of 0.1 billion yuan for the same period last year.
24Q1 achieved revenue of 695 million yuan, an increase of 4494.2%; realized net profit of 72.558 million yuan, an increase of 2916.8%; realized net profit of 568.34 million yuan after deduction, an increase of 1859.6%.
Comment:
The non-academic education business transitioned smoothly. Beginning in November '23, Huatu Education Technology, a wholly-owned subsidiary, gradually phased out the non-academic training business and brought significant profit contributions in 24Q1, which also indicates that the education business has moved smoothly. By the end of March '24, the number of direct-run outlets had surpassed 1,000, with over 3,000 full-time teachers. As of 4/25/24, 460 branches have been set up.
23Q4 Early investment in the non-academic education business led to losses. A net loss of 90 million yuan was achieved in '23, mainly because (1) November-December was not the peak period for various recruitment announcements, nor was it the peak season for recruiting new students throughout the year; (2) some course delivery costs have been confirmed but the revenue still needs to be confirmed after completing the course stage or agreed conditions; (3) the personnel team, teaching staff, and training delivery site have been completely built. Among them, expenses such as site costs, personnel costs, teacher costs, management expenses, rental property, and depreciation and amortization expenses are highly rigid, so short-term revenue cannot cover costs and expenses.
The 24Q1 education business contributed considerable profits and collected nearly 1 billion dollars. In 24Q1, with the smooth transition in the education business, the company achieved revenue of 695 million yuan, an increase of 4494%; net profit to mother was 72.56 million yuan, an increase of 2917%. Receipts were strong, and cash received from the sale of goods and provision of services reached 980 million yuan. Most of the interviews for the provincial exam were focused on Q2. Entering the peak business season, Q2 results can be expected.
Investment advice: Recruiting and training is a high-quality non-academic vocational education track. In recent years, there has been a strong desire to recruit and apply for the exam. Competition has led to a higher desire to participate, and the scale of the track is expected to continue to grow. Furthermore, the competitive pattern of the industry has been optimized, showing a “three-legged” trend. The company successfully undertook Huatu Education's high-quality brand and business. 24Q1 has contributed considerable profits and showed strong payouts. With the arrival of the peak season in Q2, performance can be expected. In agreement with Flush, EPS is expected to be 0.30/0.87 yuan in 2024-25, and the corresponding PE price for the current stock price is 287x/98x.
Risk warning: The number of students enrolled falls short of expectations, causing the company's revenue and profit to fall short of expectations; risk of macroeconomic downturn; risk of personnel turnover in key businesses.