Net profit for 2023 was 154 million yuan, in line with expectations. In 2023, the company's revenue was 2,213 million/ +23.1%; net profit attributable to mother was 154 million yuan/ +1035.2%; deducted non-net profit of 142 million yuan/ +2461.0%, in line with the previous forecast. 2023Q4, the company's revenue was 419 million yuan/ +26.8%; net profit due to mother was 36.75 million yuan/ +561.2%; net profit after deducting non-return to mother was 26.59 million yuan/ +984.0%. The profit performance for the quarter was the highest since the restructuring and listing of education assets. At the end of 2023, the contract debt was 720 million yuan/ +19.94%.

The gross margin of the education and training business hit a new high since listing. In 2023, education and training service revenue was 2.15 billion yuan/ +24.1%, the main source of gross profit; housing rental revenue was 6.57 million yuan/ +2.8%; equipment rental revenue was 5 million yuan/ -15.7%. The gross margin of the above businesses was 36.4%/70.6%/-49.2% in that order, up from +9.2/+0.8/-23.6 pct, respectively, with the education and training business being the highest since its launch.

Net interest rates have improved markedly. In 2023, the company's gross margin was 36.2% /+8.5pct; the rate for the period was 27.0% /+1.2pct, of which the sales/management/ R&D/finance rate was +0.9/+1.4/-0.1/-1.0pct year-on-year. Higher management & sales rates were due to increased market launch and expansion of the management team, while the decline in financial rates benefited from accelerated repayment. Net profit margin was 7.0% /+6.2pct.

2024Q1 achieved net profit of 50.18 million yuan, and the growth rate of contract debt accelerated month-on-month. 2024Q1, the company's revenue was 705 million yuan/ +36.0%; net profit to mother was 50.18 million yuan/ +886.4%, slightly better than our expectations (48.71 million). At the end of the first quarter of 2024, the contract debt was 1.01 billion yuan/ +23.5%, and the growth rate was further accelerated; at the end of the period, the company had 3,215 teachers and employees, +43% over the same period, and the teaching team maintained rapid expansion.

The founder, Jin Xin, became the chairman, and the pace of repayment accelerated. When the listed company acquired Xuedai Education in 2016, it generated a debt of 2.35 billion yuan to shareholder Ziguang Zhuoyuan, with an interest rate of 4.35%. Since then, the repayment pace has been slow and the debt has been rolled over many times. In 2023, the company repaid the principal amount of 400 million yuan and interest of 23.4 million yuan, and repaid the loan principal amount of 50 million yuan/100 million yuan respectively in March/April 2024. As of the end of the reporting period, the company's remaining loan principal amount to Ziguang Zhuoyuan was about 464 million yuan. The repayment pace accelerated markedly. On the one hand, this move helped release financial expenses, and also verified the business attributes of high-quality cash flow in education. Furthermore, after the chairman of the company's Ziguang Department resigned, Jin Xin, founder of Xuedai Education, became the chairman, which is also more conducive to focusing on the company's strategic direction.

Risk warning: Stricter policies; enrollment falls short of expectations; loss of key business personnel; loss of goodwill; investment suggestions such as loss of goodwill: Considering that the company's contract debt growth rate was still accelerating month-on-month at the end of 2024Q1, and the company's net profit margin improved significantly under the new competitive pattern, we raised the company's 2024-2025 net profit forecast to 276/362 million yuan (+50%/+61% compared to the original forecast), and added the 2026 forecast to 474 million yuan, corresponding to dynamic PE 29/22/17x. Since the second half of 2023, the K12 education and training circuit has presented a pattern of “strong social demand - shortage of high-quality supply”, and the company's operations have made significant profits in the context of “the rest is king”. In line with the recent trend of first-tier cities actively promoting K9 non-subject training license approval and high school player-based stocks, we believe that university education with personalized training characteristics will continue to benefit first; the company's middle vocational college layout is also exploring a second growth curve. After Jin Xin, founder of Xueda Education, recently became the chairman of the company, the governance mechanism is also expected to be further streamlined, and the company's subjective activism is expected to be more fully stimulated. As an A-share K12 education and training track variety with the best quality, and investment themes are scarce, the company's rating was raised to a “buy” rating.