Incident: The company released its 2023 annual report and 2024 quarterly report. In 2023, it achieved revenue of 247 million yuan, an increase of 131% over the previous year. Among them, non-academic training accounted for about 80% of total revenue and a gross profit margin of 28.17%.

2024Q1 achieved revenue of 695 million yuan, net profit to mother of 72 million yuan, net interest rate of 10.4%, and established a new non-academic education and training business. As a result, revenue and performance increased significantly over the same period last year.

By region, the non-academic training business was the largest in East China in 2023, achieving revenue of 121 million yuan, accounting for 8.7% of total revenue; in 2023, Central China/North China/Northeast/Southwest/Southwest/South China/Northwest respectively achieved revenue of 0.14/0.12/0.08/0.07/0.07 billion yuan, accounting for 5.85%/4.69%/3.64%/3.35%/3.03%/2.92% of total revenue, respectively.

The company develops non-academic training business through the establishment of a new subsidiary. The subsidiary Huatu Education Technology Co., Ltd. had revenue of 198 million yuan in 2023, operating profit of 82 million yuan, and net profit of 69 million yuan.

In November 2023, the company gradually launched non-academic training services in the field of vocational education through its wholly-owned subsidiary Huatu Education Technology, mainly including national and local civil service recruitment examination training, public institution recruitment examination training, medical and health system recruitment training, and corresponding qualification examination training.

Advance payments & contract liabilities: As of the end of March 2024, the company's contract debt balance was 540 million yuan, an increase of 310 million yuan over the end of 23; cash received from sales of goods and provision of services reached 980 million yuan. As of December 31, 2023, the company's contract debt balance was 230 million yuan (excluding tax), including 49.03 million yuan for regular classes, 96.25 million yuan for miscellaneous fees for agreement classes, 82.53 million yuan for agreement classes, and 2.86 million yuan for online courses. The tuition fees for regular classes and miscellaneous fees for agreement classes will be recognized as income upon delivery of the course, and the tuition fee portion for agreement classes will be recognized as income when the income recognition conditions are met.

As of March 2024, the company has achieved the overall operating layout of a “national network”. The direct management network covers 31 provinces and corresponding cities across the country, and has set up more than 400 branches nationwide, and the number of radiated outlets has exceeded 1,000. The company has more than 10,000 employees, including more than 3,000 full-time teachers, teachers and researchers, all of whom have passed the company's strict screening and training. At the same time, the company continues to increase investment in education technology. Through AI technology, the company helps students improve learning efficiency in terms of application reviews, application strategies, intelligent customer service, etc., and achieve more efficient and intelligent digital transformation.

Profit forecast and investment suggestions: The company plans to use the Huatu brand to gradually promote the business layout of the recruitment and training industry. The leading effect will be released, which can fully benefit from the growth in industry demand. We expect net profit of 5.5/7.4/960 million yuan in 2024-2026. The current stock price maintains a “recommended” rating for PE24/18/14X.

Risk warning: Risks such as business recovery falling short of expectations, increased industry competition, and macroeconomic fluctuations affecting consumption.