Incident: The company released the 2023 Annual Report & 2024 Quarterly Report: In 2023, the company achieved operating income of 247 million yuan, +131.27% year over year; net profit attributable to mother - 92 million yuan; net profit not attributable to mother - 106 million yuan.
With 2024Q1, the company achieved operating income of 695 million yuan, +4494.24% year over year; net profit of 73 million yuan to mother; net profit of 57 million yuan after deducting non-return to mother.
The non-academic training business developed smoothly, and profitability increased dramatically: after November 2023, the company launched the non-academic training business, and gross margins for 2023Q4/2024Q1 were 22.50% and 55.74% respectively, -6.41 and +40.35pct year-on-year. 2024Q1, the company's sales/management/R&D expenses rate was 25.81%/20.06%/0.84%, respectively, +22.51/+2.89/+0.84 pct. The 2023Q4 architectural design business declined significantly, and gross margin turned negative, leading to a decline in current profitability. 2024Q1's profitability increased as the share of high-margin education businesses increased.
The national layout of the non-academic training business has achieved a rapid increase in contract liabilities: 1) Personnel & network composition: By the end of 2024Q1, the company's direct management outlets covered 31 provinces and corresponding cities across the country, and the number of radiation outlets had exceeded 1,000. The company has more than 10,000 employees, including more than 3,000 full-time teachers, teachers and researchers. Among full-time teachers, more than half have a master's degree or above. 2) Education business marketing channels: The company has a full-time college operation team of more than 200 people and a team of more than 1,000 campus partners, and has established high-quality campus employment experience stores in 20 colleges and universities. 3) Scientific process management: The assessment is carried out using process nodes, making the process replicable and improving work efficiency. Various company-level processes such as DSTE (from development strategy to execution), MTL (from market to lead), LTC (from lead to repayment), and SD (service delivery) have been developed and implemented one after another. 4) New receipts have increased significantly, and cash flow is good: As of the end of 2023, the company's contract debt balance was 0.49/0.96/0.83 billion yuan (excluding tax) for regular classes/agreement classes/tuition fees/online courses, respectively (excluding tax), accounting for 21%/42%/36%/1%. 2024Q1, the company received 979 million yuan in cash from sales of goods and provision of labor services. As of 2024Q1, the company's contractual liabilities were 545 million yuan, an increase of 312 million yuan over the beginning of the period.
Investment proposal: Huatu Mountain Ding (300492.SZ) is a listed company under Huatu Hongyang Education. Huatu Hongyang Education Department is one of the leading domestic and offline non-academic training companies. The company's wholly-owned subsidiary Huatu Education Technology's non-academic training business is progressing smoothly, and 2024Q1 cash flow etc. have increased rapidly. Considering that the number of applicants for the public service category continues to rise this year and the industry is booming, the company's performance is expected to grow rapidly. We expect the company's net profit to be 6.0/8.6/1.04 billion yuan in 2024-2026, respectively, and the corresponding PE valuation will be 23x/16x/13x, respectively, maintaining an “incremental” rating.
Risk warning: Fluctuating demand for public service examinations; intensification of industry competition; changes in policy regulation.