Event: The company released its 2024 semi-annual report. With 2024H1, the company achieved revenue of 0.317 billion yuan, +68.1% YoY; gross profit of 0.143 billion yuan, +104.5% YoY; net profit 0.054 billion yuan, +170.0% YoY; and adjusted net profit of 0.054 billion yuan, +168.9% YoY.
The quality education business is progressing smoothly, and there is a high increase in contract debt: by product, 2024H1's revenue from full-time tutoring, tutoring programs, and quality education was 0.124, 0.076, and 0.118 billion yuan, respectively, +19.7%, +31.9%, and +320.9% compared with the same period last year. 2024H1, the company's gross margin was 45.0%, +8.1pct year-on-year. As of the end of June 2024, the company's contract debt balance was $0.458 billion, +116.5% YoY. The company's business performance has improved dramatically. Under the guidance of the education department, the products have completed quality transformation, and the transformed quality products have been well recognized by parents and students.
Obtaining non-subject licenses smoothly and adhering to compliant management: A number of quality products launched by the company passed the Guangdong Provincial Education Authority's non-subject certification and released the “Kunpeng Youth Development Camp Project”, which successfully transformed quality education and accelerated the acquisition of non-subject for-profit school licenses. In the first half of 2024, the company actively promoted the pace of obtaining licenses for non-disciplinary for-profit schools in Guangzhou, and operated in compliance with the license. By the end of June 2024, the number of employees in the company reached 1,785, a significant increase from 846 at the beginning of the year, and the offline delivery capacity was enhanced.
Investment advice: As a leader in education and training in South China, the company will accelerate business compliance transformation after the “double reduction” and build a “quality education+full-time review+vocational education” business system. The number of K12 students in the Guangdong region continues to rise, and demand for non-subject training and high school repetition is strong; at the same time, many places have made it clear that all non-subject licenses should be approved, and the company is expected to accelerate the expansion of the quality education business. We expect the company's net profit for 2024-2026 to be 0.172/0.255/0.352 billion yuan, respectively, and the corresponding PE is 14x/9x/7x, respectively, maintaining the “gain” rating.
Risk warning: Industry competition increases risk, risk of regulatory policy changes, and risk of a decline in the number of industry participants.