Incident: The company released its annual report for the year 23 and the quarterly report for '24. The company achieved revenue of 771 million yuan, a decrease of 2.94%; realized net profit to mother of 139 million yuan, an increase of 83.60%; and realized net profit after deduction of 141 million yuan, an increase of 76.27%.

In 24Q1, the company achieved revenue of 188 million yuan, an increase of 10.46%; realized net profit attributable to mother of 41 million yuan, an increase of 13.94%; realized net profit after deduction of 40 million yuan, an increase of 12.86%.

Comment:

Vocational schools and repeat business continued to pick up in 23 years. The company achieved revenue of 771 million yuan in '23, a decrease of 2.94%. The decline in revenue was mainly due to the divestment of the K12 education and training business at the end of '22. Among them, vocational schools and repeat business have steadily resumed enrollment, achieving revenue of 353 million yuan, an increase of 23.74%. Looking at subsidiary companies, Longmen Education's revenue was 313 million yuan, a decrease of 17.92%; Tianjin's foreign travel revenue was 41.05 million yuan, an increase of 48.14%. Ink products achieved revenue of 413 million yuan, an increase of 7.50%, mainly due to the increase in sales of high-value-added environmentally friendly ink products launched.

The gross margin of the ink business increased significantly. The company's gross margin increased 2.39pct year-on-year to 33.26% in '23. Among them, the gross margin of vocational schools and repeat studies decreased by 4.36 pct to 47.80%; the gross margin of the ink chemical business also increased by 10.33 pcts to 20.33%.

Expense rates declined during the period. The 23-year sales expense ratio also decreased by 3.7 pct to 4.0%, mainly due to the withdrawal of the K12 subject training business. The management expenses rate decreased by 1.2 pcts to 6.2%, and the R&D expenses rate also increased by 0.3 pct to 2.3%.

Education profits contributed more than 100 million yuan. In '23, the company achieved net profit of 139 million yuan, an increase of 83.60%, and a net interest rate of 7.3 pct to 17.3%. Looking at the breakdown, Longmen Education achieved net profit of 95 million yuan, an increase of 8.73%; Tianjin Overseas Travel achieved net profit of 9.8455 million yuan, an increase of 52.16%.

Zhonghao Xinying is profitable and contributes to investment income. Zhonghao Xinying, an artificial intelligence chip company that joined in April '23, achieved revenue of 485 million yuan and net profit of 81.364 million yuan in '23. Exceed promises and successfully achieve profits. It brought the company an investment income of 7.3588 million yuan.

Revenue grew steadily in 24Q1. 24Q1 achieved revenue of 188 million yuan, an increase of 10.46% over the same period.

Gross margin declined slightly in 24Q1. In 24Q1, the company's gross margin fell 0.47pct year-on-year to 36.85%.

The cost rate was well controlled during the 24Q1 period. In 24Q1, the sales expense ratio decreased by 1.05 pct to 2.26%, the management cost ratio decreased by 0.07 pct to 6.11%, and the R&D cost rate decreased by 0.39 pct to 1.45%.

There was a steady increase in profit in 24Q1. In 24Q1, net profit attributable to mother was 41 million yuan, an increase of 13.94% over the same period.

Investment advice: 23 years of high performance growth, good recovery in repetition and vocational school business. Although the 24Q1 repetition and vocational school business was slightly disrupted during the winter vacation, we expect the boom to continue in '24. We expect EPS to be 0.53/0.66/0.80 yuan in 2024-26, and the current stock price corresponding to PE is 22x/18x/14x, maintaining a “buy” rating.

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.