Incident Overview

In 2023, the company's revenue/net profit attributable to mothers/net profit after deducting non-attributable net profit/operating cash flow were 7.71/1.39/1.41/27%, respectively, up -2.94%/83.60%/76.27%/66.56% year on year, but excluding the impact of the K12 divestiture, revenue increased 13.7% year on year. Non-recurrent items were mainly due to non-current asset disposal losses of 3.25 million yuan, a year-on-year decrease of 46%. The higher operating cash flow than net profit is mainly due to an increase in contract liabilities. 23Q4 single quarter revenue/net profit attributable to mothers/net profit net income after deduction of non-mother was 2.10/0.39/41 million yuan, respectively, up 2.37%/85.17%/61.13% year over year.

In 2023, it is proposed to pay a cash dividend of 2.7 yuan for every 10 shares, with a dividend rate of 64.2% and a dividend rate of 2.6%.

24Q1 single quarter revenue/net profit attributable to mothers/net profit after deduction of non-return to mother were 1.88/0.41/040 million yuan respectively, up 10.46%/13.94%/12.86% year-on-year.

On 23/10/16, the company completed the acquisition of 7.80% of Zhonghao Xinying's shares. In 23, Zhonghao Xinying achieved revenue/net profit of 48/80 million yuan, which exceeded performance promises (total revenue for 23-24 was not less than 760 million yuan, and not less than 208 million yuan in 23).

Analytical judgment:

The company completed the divestment of the K12 business, and the vocational school and repeat business grew significantly. (1) Education business revenue/net profit/net interest rate was 357/110 million yuan/30.9%, up -12.76%/23% /9PCT. The decline in revenue was mainly due to the company completing the divestment of the K12 extracurricular training business in 23. Excluding this impact, education revenue increased 21.9% year over year. The income from vocational schools and repetition/other education was $353/04 billion, respectively, up 24%/-47% year over year. In terms of subsidiaries, revenue from Shaanxi Longmen/Tianjin Travel/Hebi Maotan was 313/0.41/0.03 billion yuan respectively, up -18%/48%/367% year on year. After excluding the impact of K12 divestment, Shaanxi Longmen's revenue increased 18% year on year; net profit was 0.95/0.10/0.09 billion yuan, up 9%/52%/50% year on year, and net interest rates were 30%/24% /-, respectively, up 7/1/NAPCT. (2) Ink chemical business revenue/net profit/net margin was 414/29 million yuan/ 7%, up 7.49% /loss/10PCT. Distribution/direct sales revenue increased 6.0%/19.2% respectively. We analyzed that the net profit growth of ink was better than previous years mainly due to falling raw material prices and falling freight costs.

The increase in net interest rate was higher than the gross profit margin, mainly due to a decrease in sales and management expenses and an increase in net return on investment. (1) The company's gross margin in '23 was 33.26%, up 2.39 PCT year on year. Among them, gross margin of education business/ ink chemicals was 48.25%/20.33%, up -2.25PCT/10.33PCT year on year. The increase in gross margin of the ink business was mainly due to the continuous increase in the share of high value-added environmentally friendly ink products. The company's net profit margin was 17.96%, an increase of 8.64PCT over the same period last year. Looking at the cost ratio, the 23 sales/management/R&D/finance expense ratios were 4.00%/6.25%/2.26%/-0.18%, respectively, up -3.73/-1.17/0.30/0.10PCT. The decline in sales expenses was mainly due to the reduction in related expenses due to the company's closure of K12 business; the decline in the management expense ratio was mainly due to a decrease in employee remuneration. The share of other income increased by 0.22PCT to 0.33%; the share of net income from investment increased by 1.63PCT to 0.68%, mainly contributing 0.07 billion yuan to Zhonghao Xinying's investment income; the share of asset disposal losses increased by 0.36PCT to 0.12%; and income tax/revenue increased 0.95PCT to 3.60%. (2) 23Q4 gross margin was 29.14%, up 5.96PCT year on year; net profit margin to mother was 18.51%, up 8.28 PCT year on year. The increase was higher than gross margin mainly due to investment income contributions. Net return on investment increased 4.24PCT to 2.46%. (3) 24Q1 gross margin was 36.85%, down 0.47PCT year on year; net profit margin to mother was 21.72%, up 0.67 PCT year on year, mainly due to a decrease in sales expenses. Looking at the cost ratio, the 24Q1 sales/management/R&D/finance expenses ratio was 2.26%/6.11%/1.45%/-0.02%, respectively, with a year-on-year increase of -1.05/-0.76/-0.39/0.09PCT.

Advance payments continued to grow. Contract liabilities at the end of 23 million yuan were 67 million yuan, an increase of 75.46% year over year. Contract liabilities at the end of March '24 were $973 million, up 11.7% year over year.

Investment advice

According to our analysis, 1) The company's middle vocational business is expected to maintain a high growth rate. The company has two private for-profit vocational high schools, Xi'an Talent Training and Tianjin Foreign Vocational High School. The company plans to add 2-3 new campuses in these two regions in the future. According to our estimates, we expect to add about 2,000 new students in the future. 2) The future space for the repeat business lies in the increase in tuition fees and the expansion of market share from other locations; 3) The company holds 7.8% of Zhonghao Xinying's shares, which is expected to continue to increase performance. Maintain the 24-25 revenue forecast of 950/1,103 million yuan, respectively, and add the 26-year revenue forecast of 1,266 million yuan; maintain the 24-25 net profit forecast of 115/191 million yuan, and add the 26-year net profit forecast of 233 million yuan, corresponding to the 24-26 EPS of 0.47/0.58/0.71 yuan. On April 26, 2024, the company's closing price was 10.42 yuan, corresponding 24-26PE was 22/18/15X, maintaining a “buy rating”.

Risk warning

Potential risks of policy changes, school expansion progress and campus utilization falling short of expectations, risk of loss of management team and teaching staff, risk of market competition risk, systemic risk, Wu Xianliang, chairman and general manager of the company in October 2019, and Guo Minmin, then financial director, were criticized and punished by the Shenzhen Stock Exchange.