Introduction to this report:

Due to missed exams and increased competition in the industry, revenue was disrupted. The 2024H1 performance forecast was slightly lower than expected; the company's boutique classes continued to operate strongly, and OMO can be expected to grow collaboratively.

Key points of investment:

The performance was slightly lower than expected, and the rating was “increased”. The company's adjusted net profit for FY2024-2026 is estimated to be 0.546/0.626/0.715 billion yuan, respectively, giving 15x PE for fiscal year 2024, with a target price of HK$3.85, maintaining the “increase in holdings” rating.

Performance summary: The company issued a semi-annual performance forecast. It is expected that revenue for the first half of 2024 will not be less than 1.61 billion yuan, down 4.3% year on year; net profit will not be less than 0.255 billion yuan, up no less than 212.9% year on year; adjusted net profit (profit for the period excluding share payments and fair value losses of financial liabilities measured at fair value and whose changes are included in current profit and loss) will not be less than 0.327 billion yuan, an increase of no less than 13.5% year on year.

Revenue was disrupted due to missed examinations and increased competition in the industry. The profit side achieved year-on-year growth in the first half of 2024, mainly due to: ① The company's consistent and long-term investment in technology, and the leading application of online technology such as artificial intelligence in the Group's teachers' teaching and course products made the Group's teacher utilization efficiency advantages increasingly reflected, and the average teacher's income contribution continued to increase; ② technological empowerment further improved operating efficiency, employee costs were optimized year on year, and 2024H1 gross margin and net interest rate were expected to increase year on year; ③ 2024H1 saw a sharp decrease in share payments confirmed according to different ownership service periods. There was a year-on-year decline on the revenue side, mainly due to: ① the early disturbance of the 2024H1 joint examination schedule for public institutions; ② the intensification of price competition in the industry pattern, the consumption environment is weak, and payment capacity has declined.

Small classes continue to operate and gain strength, and OMO collaboration space can be expected. With strong product development capabilities, high-quality courses and rich learning tools, it has established a huge user pool base. Through: ① Card traffic entry for tool products such as question banks, rich product matrices to meet diversified learning needs, and the number of payers continues to grow, focusing on high-quality content and services, supporting boutique small-class models to increase customer unit price and drive online training business volume; ② The layout of offline operation centers covers the whole country, OMO collaborative services enhance teaching efficiency, effectiveness and experience, and drive deep integration of online and offline to achieve efficient circulation transformation. Good reputation and low-cost traffic conversion advantages are expected to support healthy and rapid business expansion; ③ Based on the deep-established Internet technology+ genes, it is expected to support healthy and rapid business expansion; Based on the deep-established Internet technology+ genes With investment in layout AI research and development, there is room for growth to be expected.

Risk warning: Risk of increased market competition, declining brand image, and fluctuating refund rates for agreed courses.