K12 International education is the main focus, quality education and modern vocational education are the foundation

Since completing the transformation of the education business, the company has been providing operational support services to schools as its main business. Currently, it mainly provides operation services for Beijing Haidian Kevin School and Beijing Chaoyang Kevin School. Expand the boundaries of quality education business from within schools to outside schools, and actively lay out vocational education tracks in response to national policies.

Listed educational companies under the Haidian District State-owned Assets Administration Commission use and integrate high-quality education resources and assets to carry out basic education services.

Diversified business layout, gradual restoration of profitability

24Q1 revenue was $77 million, up 12.93% year-on-year. Kevin Education's revenue in 2019-23 was 7.95 million yuan, 3.21, 2.84, 1.72, and 254 million yuan respectively. The company's revenue mainly came from K12 tuition and catering revenue. The decrease in revenue since 2019 mainly reflects (1) the impact of the pandemic; (2) the impact of the 2021 Public Promotion Law. Net profit attributable to mother for 24Q1 was -404 million yuan, up 66.66% from the same period.

In the early days, the company operated the school business according to an asset-heavy strategy. In the later stages, enrollment fell short of expectations due to external factors such as policies and markets, and depreciation and loan interest under heavy asset management dragged down the company's performance. Currently, operating cash flow is positive. A certain amount of principal and interest will also be repaid every year, and loan stocks have been reduced. 24Q1 The company's gross margin is 26.72%. As the number of students at Chaoyang Kevin School grows, tuition fees increase, and the scale of quality education and vocational education continues to expand, the company's gross margin is expected to increase further, driving the company to turn a loss into a profit.

Policies support the company's business development, and market potential is expected to be unleashed

The state supports and regulates the development of private education, and emphasizes expanding the supply of quality education resources. Overall, education, study abroad training, and camp education are showing signs of recovery, and there are also new opportunities for quality education and education going overseas. The field of quality education continues to be encouraged by policies, and the quality education and training industry has a good market space. According to the “2022 Quality Education Industry Report” published by Duowhale Research and Development, the potential domestic market for quality education will exceed 478.7 billion yuan in 2023. Vocational education has intensive policy support, the integration of maternity and education has become a trend, the upgrading of the national industrial structure is driving the demand for applied talents, and the integration of maternity and education has become the key to vocational education.

K12 business operates on two tracks, and quality education and vocational education go hand in hand

Haidian Kevin School's teaching results are outstanding, and students have achieved excellent results in further education. Students received offers from the top ten schools in the US and Oxford and Cambridge to raise the school's reputation. Continuing to compete at a high level, we have formed a “club+subject group+professional team” and a “trinity” preparation structure. Chaoyang Kevin Quality High School has officially opened, which is expected to promote school development and accelerate the increase in the number of students at Chaoyang School.

Kevin Quality Education mainly revolves around the two Kevin Schools, Kevin Sports, Kevin Arts, and Kevin Camp. Kevin Art has established good cooperative relationships with many parties, and the company has accumulated high-quality quality education resources in the fields of art, sports, etc. Kevin Sports leverages its corporate advantages, develops an important sector of “youth training and education”, improves snow and ice sports education resources, and actively expands diversified business models. The company expects a larger increase in revenue and service numbers in various business segments during the 2024 summer vacation.

The company has actively developed the integrated business of vocational education, obstetrics and education. Cooperation agreements have been signed with a number of industry leaders in various segments to enable the integration of industry and education in domestic colleges and universities, and to establish popular emerging majors such as artificial intelligence, big data, and metaverse. The number of vocational education students is expected to grow, and the gross profit is considerable.

First coverage, giving a “buy” rating.

As an education company under the Haidian State-owned Assets Administration Commission, the company has always focused on education as its main business, relying on the rich and high-quality educational resources of Haidian District. With the gradual recovery of profitability, the gradual development of the quality education and training business, and the promotion of the integration of vocational education, obstetrics and education, market share is expected to continue to increase. We expect the company's revenue for 24-26 to be 3.61 billion 472/601 million yuan, net profit to mother of 0.11/0.46/87 million, EPS 0.02/0.08/0.15 yuan/share, respectively, and PE 210/51/27x, respectively.

Risk warning: Risk of changes in industry policies, increased risk of market competition, risk of depreciation and amortization dragging down performance, risk of a company's low market value in circulation, estimation is subjective risk, etc.