Incident Overview

2024H1's revenue/net profit to mothers/net profit adjusted to mother were 1.983/0.272/0.278 billion yuan respectively, up 1.6%/33.2%/57.9% year-on-year, exceeding market expectations. The net profit growth rate was higher than the revenue growth rate, mainly due to the increase in gross margin and the overall decline in expense ratios. That is, the net profit of the net profit increased by 70 million compared to the year-on-year increase in sales expenses by 50 million (mainly due to savings on advertising expenses) and a decrease of 20 million in costs (including a decrease of 13 million in rent and a decrease of 23 million in educational consumables). The adjusted net profit growth rate was higher than net profit due mainly to the 87% year-on-year decrease in exchange earnings for the current period. The average number of new recruitments/trainees was 0.078/0.1448 million, up -7.7%/-1.7% year on year. The Group adjusted its enrollment strategy to optimize the curriculum structure and attract more high-value new students. As a result, revenue increased despite an 8% reduction in the number of new recruits and a 4% reduction in the number of schools.

Analytical judgment:

The auto service and beauty industries are still growing rapidly, and Omega and Aesthetic OPM have increased significantly. (1) By business, 2024H1 cooking technology/Western food, information technology and internet technology/car service/fashion and beauty/other revenue was 9.23/1.59/3.78/0.449/0.04/0.098 billion yuan respectively, up -2.9%/-0.8%/-4.3%/11.1%/142.1%/9.0% year-on-year. We analyzed that cooking is gradually recovering, but it is still affected by delays in long-term student enrollment during the pandemic. (2) Looking at the number of students: 1) By business segment: cooking technology/Western food, information technology and internet technology/automobile service/fashion and beauty, the average number of trainees was 5.7/0.5/0.04/0.04/0.003 million, up -5.3%/1.0%/-6.3%/3.4%/144.2% over the previous year. 2) By course cycle: Long-term students are still declining, mainly affected by the delay in long-term student enrollment due to the epidemic. The number of long-term and short-term courses was 0.128/0.017 million, up -2.3%/3.5% year on year; among them, the 2-3 year system declined more (-31.9%), and the proportion of 1-2 year/2-3 year/3-year students was 7%/14%/79%, which increased 42%/-32%/2.6% year over year. (3) Looking at the unit price, car service prices have increased significantly. The average customer unit price for cooking technology/Western food, information technology and internet technology/car service/fashion and beauty was 3.2/6.9/0.019/0.022/0.024 million yuan, respectively, up 2.1%/-1.8%/2.1%/7.4%/-3.5% year-on-year. Our analysis mainly comes from the Group's optimization of enrollment strategies and reducing the number of low-customer unit price students. (4) By business, there was a marked increase in OPM for Western food and fashion beauty. The OPM for 2024H1 cooking technology/Western Western cuisine/information technology and internet technology/automobile service/fashion and beauty/other business was 22.6%/-0.3%/18.4%/16.7%/-7.9%/-19.3%, respectively, up 3.9/15.4/5.6/5.1/37.2/4.8PCT over the previous year.

There was an increase in the number of short-term students enrolled in the 1-2 year program and the beauty industry, and the number of new students enrolled in the 2-year program and above decreased. (1) The total number of schools was 234, with a year-on-year net of 10 (-4%). The closure was mainly due to Omic (-10 compared to the previous year). The cooking contraction and automobile and beauty industries continued to expand. New Oriental/Omiche/Delicious Academy/Xinhua Computer/Huaxin Zhiyuan/Wantong Auto/Ormandi were 75/36/18/38/19/41/7, respectively, with a year-on-year net opening of -1/-10/-2/0/-1/1/3. (2) In terms of the number of new students enrolled, there were 3.5/0.8/0.013/0.02/0.003 million newly registered users in the cooking technology/Western food/information technology/internet technology/automotive services/fashion and beauty industries, respectively, an increase of -11.2%/-12.9%/-11.1%/-3.6%/88.1% over the previous year. The number of long-term and short-term courses was 0.033/0.046 million, a year-on-year decrease of 6.4%/8.7%. Among them, the 1-2 year program increased significantly (52.5%), the 2-3/3-year program decreased by 17.3%/12.8%, respectively, and the proportion of students in 1-2 years/2-3 years/3 years was 18%/13%/69%. The 1-2 year program for cooking, IT, and automotive services increased by 85%/35%/42%, respectively, accounting for 6%/9%/6% in each sector, while beauty longer/short-term courses increased by 155%/43% year over year, accounting for 55%/45%, respectively.

(3) New Oriental and Wantong guide the increase in employment rates. The employment rates of New Oriental/ Xinhua Computer/ Wantong/ Omiq/ Ormandi were 94.4%/92.0%/96.1%/93.0%/95.3% respectively, up 0.6/-0.6/3.4/-0.1/-0.3PCT over the same period last year.

The increase in gross margin was mainly due to a decrease in costs such as education-related consumables, rental expenses, and campus depreciation. The increase in net profit margin higher than gross margin was mainly due to a decrease in sales expenses. (1) 2024H1's gross margin was 53.0%, up 1.9 PCT year on year. Costs such as education-related consumables, rental expenses, and campus depreciation declined mainly due to increased revenue. The total number of employees in 24H1 was 10,564, down 9% year on year; of these, executive directors and core managers/full-time teachers and mentors/ student accommodation staff/ logistics staff/ administrative staff/ accounting and finance staff/ others were 312/5456/53/386/1779/356/2222, respectively, a decrease of 3.7%/1.8%/38%/14%/34%/12%/-2.7%. By business, the gross margin of 2024H1 cooking technology/ Western food technology/ IT and Internet technology/ automobile service/ fashion and beauty/ other businesses was 55.3%/54.1%/54.1%/52.6%/-32.3%, respectively, increasing 2.6/6.8/-0.7/2.3/16.7/11.8PCT over the previous year. The gross margin of Western food and fashion and beauty industries increased a lot. (2) 2024H1's net interest rate to mother was 13.7%, up 3.3 PCT year on year; 1) Sales/management/R&D/finance expense ratios were 23.4%/12.9%/0.3%/3.1%, respectively, down 2.9% /0.2/0.1/0.6PCT. The decline in sales expenses was mainly due to the company strengthening advertising cost control; 2) Other revenue/revenue -1.7PCT to 1.2% year over year, mainly due to the year-on-year decrease in foreign exchange earnings of 86.4% to 0.006 billion yuan; other revenues/revenue were the same Compared to -0.6 PCT to 2.9%, mainly due to a decrease in government subsidies and interest income; income tax/income decreased by 0.12 PCT to 3.76%.

Investment advice

We analyzed that (1) in the short term, we expect that as cost control performance is expected to continue to exceed expectations; (2) in the medium term, long-term student growth is expected to gradually recover after enrollment is normalized; by category, we expect IT to recover, but the automotive and beauty industries will maintain rapid growth, Omiki and the beauty industry will continue to reduce losses, and the net interest rate for automobile services will increase; (3) the company's long-term advantage lies in employment competitiveness and the ability to quickly adjust courses in response to market changes. After the construction of the company's regional center is completed, the qualifications of the technician college are approved, which is expected to extend the academic system. Considering that the interim results exceeded expectations, the 24/25/26 revenue forecast was adjusted to 44.5/51.0/5.8 billion yuan to 4.15/4.41/4.84 billion yuan; increase the 24/25/26 net profit to mother of 0.4/0.48/0.623 billion yuan to 0.496/0.596/0.725 billion yuan, corresponding to an increase of 24-26 EPS of 0.19/0.22/0.29 yuan to 0.23/0.27/0.33 yuan The closing price of HK$2.58 on August 21, 2024 was 10/9/7 times PE (HKD 1 = RMB 0.92) for 24/25/26, with a dividend rate of 8%, maintaining a “buy” rating.

Risk warning

Potential risks of policy changes, higher-than-expected IT decline, less-than-expected cooking recovery, high cost risk, systemic risk.