In the first half of 2024, Excellent Education Group accelerated its transformation through continuous optimization of quality products and services, and its performance increased dramatically. 2024H1 achieved revenue of 0.317 billion yuan, a year-on-year increase of 68.1%. Net profit to mother was 0.055 billion yuan, an increase of 160.7% year over year.

By business, in the first half of the year, full-time review contributed 0.123 billion yuan in revenue, up 19.7% year on year; tutoring programs contributed 0.076 billion yuan, up 31.9% year on year; quality education contributed 0.117 billion yuan, up 320.9% year on year.

Quality transformation has achieved remarkable results, and contract debt has increased significantly over the same period last year. The company actively responded to changes in education policies and continued to optimize quality products and services. After the transformation, many quality products focusing on core qualities such as literature and scientific quality passed non-subject certification by the Guangdong Provincial Education Authority; the “Six Force Model” for children's growth and the “Kunpeng Youth Growth Camp Project” launched with advanced interactive and exploratory teaching methods were highly recognized by society and students, helping to build the company's quality education brand image. The company's contract debt in the first half of the year was 0.458 billion yuan, an increase of 116.5% over the previous year. We believe that contract debt is expected to continue to grow at a high rate throughout the year, and contract debt in the first half of the year will be converted into revenue to guarantee annual results.

AI empowers organizations to improve their effectiveness and continuously optimize management costs. In the first half of 2024, the company increased its investment and exploration in the field of AI. It was invited to join the Guangdong Artificial Intelligence Industry Association and become the governing unit of the association to further explore the application of artificial intelligence in improving the quality of education and improving organizational effectiveness. The company combines AI-assisted decision-making systems to achieve more efficient campus management and improve the overall organizational efficiency of the group. The 24H1 company's management expenses rate was 12.9%, a year-on-year decrease of 2.26 percentage points.

Equity incentives stimulate employees' vitality and promote the long-term development of the enterprise. On April 30, 2024, the Company granted a total of 58,000,000 restricted shares (approximately 6.8% of the total number of shares issued by the Company during the announcement period) to 552 employees of the Group, including associated grantees. While enhancing employees' sense of belonging and loyalty, the equity incentive plan is expected to stimulate their enthusiasm and creativity, effectively promote the common growth of the company and employees, share the company's development dividends, and promote the long-term development of the enterprise and the improvement of market competitiveness.

Profit forecast and valuation: We expect revenue from 2024 to 2026 to be 1.01 billion yuan, 1.8 billion yuan, and 2.5 billion yuan, respectively, and net profit to mother will be 0.176 billion yuan, 0.278 billion yuan, and 0.374 billion yuan respectively. The corresponding PE is 13X, 8X, and 6X, respectively. We select New Oriental, Xile Education, and University Education as comparable companies. The average PE valuation for quality education and training companies in 2024 is about Twenty-nine times. Considering the remarkable results of the company's transformation in quality education, while the company is speeding up the acquisition of non-subject for-profit school licenses, the market performance feedback for various quality education products is good, and the annual performance is expected to continue to grow at a high rate. Covered for the first time, a “gain” rating was given.

Risk warning: Quality education business demand falls short of expectations; competition in the quality education industry intensifies; risk of regulatory policy changes.