Incident: The company released its 2023 annual report and 2024 quarterly report. During the reporting period, it achieved operating income of 253.89 million yuan and 77.05 million yuan, respectively, up 47.78% and 12.93% year on year; net profit to mother was -49.72 million yuan and -3.54 million yuan, respectively, up 48.48% and 66.66% year on year, respectively; earnings per share were -0.08 yuan and -0.01 yuan, respectively.

Education revenue is growing rapidly and is expected to accelerate in the third and fourth quarter. In 2023, the company achieved revenue of 253.89 million yuan, a year-on-year increase of 47.78%, including tuition and miscellaneous fees of 183.11 million yuan, an increase of 32.91% over the previous year; training revenue of 66.64 million yuan, an increase of 119.48% over the previous year.

The company's revenue continued to grow in the first quarter of 2024, achieving revenue of 77.05 million yuan, an increase of 12.93% over the previous year. In September 2024, the company will welcome new students. Considering the increase in quality high schools and the impact of good enrollment at Haidian Kevin School, it is expected that the number of students enrolled in Chaoyang Kevin School and Haidian Kevin School will achieve significant growth in the 2024-2025 school year, which will have a positive impact on the company's revenue. Meanwhile, according to the service agreement between the company and the two schools, September 2024 will usher in rent adjustments for the two schools. Among them, Haidian Kaiwen's annual rent will increase from 88 million yuan to 92.4 million yuan, and Chaoyang Kaiwen's annual rent will increase from 60 million yuan to 80 million yuan. The expansion of the number of students enrolled and the increase in rents will help the company accelerate revenue growth in the third and fourth quarter.

Actively laying out domestic racetracks, the college entrance examination ushered in a golden period. In 2023, Chaoyang Kevin launched a high-quality high school. President Tian Min, who has school-level management experience in key schools in Tsinghua Affiliated High School and Beijing No. 4 Middle School, is at the helm. The teachers are from top exemplary high schools in Beijing and the country. Seven of these subjects are led by senior teachers, and the rest are key teachers. High quality high schools have tuition fees of 150,000 yuan/year, and the total cost of accommodation and meals is 50,000 yuan/year. The enrollment results are good, the quality of students is high, and they have achieved good results in running schools. In the next few years, Beijing will usher in a golden period for college entrance examinations. The number of middle school graduates in Beijing from 2021 to 2023 is 8,7856, 10,3514, and 110,365, respectively. The number of high school students enrolled is 62,263, 74681, and 79,716, respectively. Currently, there are 135,154 first-year students, 1,15929 second-year students, and 114980 junior high school students. Chaoyang Kevin seizes the college entrance examination opportunity, actively lays out and gets off to a good start, which is of positive significance to the increase in the utilization rate of Chaoyang Kevin's school building.

At the same time, Haidian Kevin's elementary school launched the “Jingrun Mathematics Specialty Class” for the 2024-2025 school year. The two-track system will help the school's students grow rapidly.

Quality education is developing rapidly, and vocational education is expected to expand. In terms of quality education, the company uses sports, art, and science and technology education to lead the comprehensive quality development of students, and includes arts and sports courses in the compulsory category, forming differentiated competitive advantages and school characteristics with the characteristics of arts and sports.

At the same time, Chaoyang Kevin specially set up an international art class (KAP) and international music class (KMP) at the high school level, providing a diverse range of further education paths for students with different endowments and interests. In addition, the company has vigorously developed snow and ice sports, enhancing the competitiveness of the snow and ice sports education and training market. While satisfying in-school quality classes, the company is also actively expanding outside of school, promoting sports, art, and technology training with “Kevin's characteristics” to the community, and providing complete K12 stage system camp education. The quality training business is growing rapidly. In terms of vocational education, the company has vigorously developed industrial colleges, using Haike Vocational Education as the company's vocational education platform. Through strong alliances, the company has established strategic partnerships with “big manufacturers” such as Baidu, Tencent, Qimingchen, Longxin Zhongke, and Phoenix Mathematics. At the same time, it has established close cooperative relationships with integrated obstetrics and education enterprises such as Newmyer, Henan Kecheng, and Beijing Juhua. As of the fall of 2023, the total number of students enrolled was over 4,000.

Profitability has improved dramatically, and an inflection point in operations is expected. In the first quarter of 2021-2024, the company's gross margins were -0.58%, 14.35%, 24.14% and 26.72%, respectively, and net margins were -42.32%, -56.17%, -19.09% and -4.60%, respectively. The gross margin showed a continuous upward trend. Net profit margin was about to change from negative to positive, and profitability improved significantly. The company's cash flow showed a continuous inflow trend. The company's net operating cash flow in 2021-2023 was 121.49 million yuan, 223.2 million yuan and 65.14 million yuan respectively. Good cash flow provided financial support for the company's business development. The quality of the company's assets is high. As of the end of 2023, the company's total assets were 3.110 billion yuan, mainly monetary capital (308 million yuan) and investment real estate (1,876 billion yuan). Among them, investment real estate was mainly Chaoyang Kevin School assets and 3 office buildings. The asset quality was relatively high, and the revaluation value was high (previously, the company sold 1 office building, with a transaction consideration of about 530 million yuan). Good further education will help enroll students in the 2024-2025 academic year. The expansion of current students will help the company's revenue grow rapidly. At the same time, the optimization of assets and liabilities will help reduce the company's depreciation and amortization and financial burden. The inflection point of the company's operations is expected to arrive.

Valuation and profit forecast: With good education and the establishment of high-quality domestic high schools, the usage rate of the company's school buildings is expected to continue to increase. At the same time, school rent adjustments are imminent, and the company is expected to usher in a trending business inflection point. At the same time, the company is actively developing quality education training and vocational education integrating obstetrics and education, and the two major business segments are showing a rapid growth trend. Furthermore, the controlling shareholder, Haiguo Investment proposed a development target of “three 50 billion dollars,” and the controlling shareholders' support is expected to increase. The company's revenue for 2024-2026 is expected to be 399 million yuan, 584 million yuan and 818 million yuan, respectively, up 57.27%, 46.20% and 40.12% year on year; net profit to mother will be 0.13 billion yuan, 51 million yuan and 116 million yuan respectively, up 125.69%, 298.87% and 127.87%, respectively, maintaining the company's “buy-A” rating, and giving it 8 times PS compared to 2024, corresponding to the target price of 5.34 yuan.

Risk warning: There are risks such as falling short of expectations in enrollment, poor promotion conditions, slow increase in tuition fees, and serious student turnover.