Revenue surpassed expectations and profit growth slowed
The company announced FY24Q3 results as of February 29, 2024. Q3 net revenue increased 60.1% year on year to US$1.21 billion, exceeding the previous quarter's growth rate of 42%-45%; operating profit increased 70.6% year on year to US$110 million, and net profit to mother increased 6.8% year on year to US$90 million. On the expense side, sales expenses for the quarter were 160 million US dollars, the sales expense ratio was 13.36%, down 0.25 pct year on year, management expenses were 590 million US dollars, and the management expenses ratio was 23.84%, down 4.73 pct year on year. Overall, the company continues to perform well on the revenue side, but profits are under pressure.
New business continues to grow rapidly, and all lines are fully blossoming
The overseas exam preparation and overseas consulting business continued to grow, showing year-on-year increases of about 52.6% and 25.7%, respectively.
Domestic exam preparation services for adults and college students recorded a year-on-year increase of about 53.2%.
Revenue from the new education business increased 72.7% year over year. Among them, non-subject tutoring services were launched in nearly 60 cities during the current fiscal season, with 355,000 registrants, an increase of 62.84% over the previous year; active paying users of intelligent learning systems and equipment reached 188,000 this fiscal season, an increase of 74.07% over the previous year.
A cultural tourism business line has been launched, providing services such as research trips and research camps, and carrying out study tours and research camps in more than 50 cities across the country. Among them, the top ten cities account for more than 55% of revenue.
Campus expansion is accelerating, and the education business boom continues
At the FY23Q4 earnings conference, the company's guidance for FY24 was to expand the campus by 15%-20%. In actual performance, as of FY24Q3, the number of schools and learning centers had recovered to 911, an increase of 21.79% over 2008. The company updated its expansion guidelines for the whole year, and is expected to increase the capacity of learning centers and classroom space by about 30% this fiscal year. In terms of performance guidelines, the company expects FY24Q4 revenue to be between US$1,10-1.13 billion, an increase of 28%-31% year-on-year. As of FY24Q3, the total deferred revenue on the company's account was US$1,522 million, an increase of 30.83% over the previous year. It is basically in line with the next quarter's performance guidelines. It is expected that businesses such as quality education will still have strong certainty. The company's performance continues to exceed expectations and continues to provide optimistic guidance. We believe that the education business has begun to recover steadily, and strong demand compounded the expansion of the company's campus, and K12 education can be expected in the future.
Investment advice
The quality education circuit is booming with both supply and demand. Oriental Selection's high investment has slightly dragged down the company's overall profitability. We raised our revenue forecast and lowered our net profit forecast. We expect the company's revenue for the 2024-2026 fiscal year to be US$42.9/53.1/6.38 billion (previous value of US$42.4/52.7/US$6.36 billion), and net profit to mother of US$3.7/55/ US$7.2 billion (previous value of US$4.2/6.1/760 million), with earnings per share of $0.22/0.33/0.44 (previous value 0.26/0.37/ $0.46), corresponding to the closing price of HK$68.65 on April 26, 2024, and PE was 39.27/26.48/20.16X, respectively (USD/HKD exchange rate 1:7.8210). Maintain an “Overweight” rating.
Risk warning
Quality education business demand falls short of expectations; competition in the quality education industry intensifies; high school business policy risks