Key points of investment

2024H1 achieved significant net profit/adjusted net profit growth: 2024H1 achieved revenue of 1.63 billion yuan, -3.1% year over year; achieved net profit of 0.278 billion yuan, +240.9% year over year; achieved adjusted net profit of 0.349 billion yuan, +21.2% year over year; and achieved net cash flow from operating activities of 0.235 billion yuan.

Affected by the collision between public institution personnel recruitment examinations and provincial civil service examinations, the company's revenue declined briefly: by business, 2024H1's training business achieved revenue of 1.379 billion yuan, -3.11% over the same period last year. Among them, online learning products achieved revenue of 0.065 billion yuan, large class training courses achieved revenue of 0.266 billion yuan, small class training courses achieved revenue of 1.026 billion yuan, and other training courses achieved revenue of 0.023 billion yuan. The 2024H1 book sales business achieved revenue of 0.252 billion yuan, -2.96% YoY.

This is mainly due to the colliding period between the written examination for public institution personnel recruitment and the written examination for the provincial civil service joint examination in the first half of 2024, which led to a decline in sales of training courses, examination materials, and guidance materials for public institution personnel recruitment examinations.

The gross margin of training services increased, supporting the company's gross margin to continue to grow: 2024H1's overall business gross margin was 54.2%, +3.3 pct compared to the same period last year. Among them, the gross margin of training services was 57.9%, +4pct compared to the same period last year, mainly due to reduced employee benefit expenses and improved operational efficiency. The gross margin of book sales was 33.6%, -0.8 pct compared to the same period last year.

Combining the advantages of online business with offline teaching resources, small-class training courses support the company's revenue resilience: the company innovates the OMO model and combines online and offline resources to achieve synergy effects. Among them, small class training courses are the main component of the company's revenue, combining offline classroom scenarios with high-quality supervision and question-answering services from high-quality online teachers to help students achieve rapid score increases. As of June 30, 2024, the company had 3145 full-time lecturers; the average monthly active users reached 9.2 million, the same as the same period last year.

Profit forecast and investment rating: Chalk is a leading training institution in China's public examination industry. It has accumulated a good reputation in online training. It has operated steadily and recovered rapidly in the past few years, and has gradually occupied a leading position in the industry. However, considering the mismatch of the examination cycle in the first half of 2024 and the impact of the general consumer environment putting pressure on revenue, we lowered the company's net profit from 0.52/0.7/0.91 billion yuan to 0.45/0.55/0.66 billion yuan Yuan, corresponding to 2024-2026 PE was 20/17/14 times, respectively, maintaining a “buy” rating.

Risk warning: policy risks, increased competition risks, risks of under-enrollment expectations, new course development risks, etc.