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2024H1 Company's revenue/net profit attributable to mothers/net profit after deducting non-attributable net profit/operating cash flow were 3.70/0.063/0.062/0.063 billion yuan, up 3.82%/8.88%/7.80%/-41.71 year on year. Net profit was mainly dragged down by losses from Zhonghao Xinying Investment; excluding investment losses, net profit increased 20%. 24Q2 quarterly revenue/net profit attributable to mothers/ net profit deducted from non-return/ operating cash flow was 1.83/0.022/0.022/ -0.015 billion yuan, respectively, up -2.22%/0.63%/0.52%/loss over the previous year.

2024H1 plans to pay a cash dividend of 1.5 yuan for every 10 shares, with a dividend rate of 69.2% and a dividend rate of 2.85%.

Analytical judgment:

Revenue from the education business increased slightly, advance payments continued to grow, and Longmen's net profit was 0.037 billion yuan. (1) Education business revenue/net profit/net margin was 0.174/0.039 billion yuan/22.51%, up 6.11%/-19.41%/-7.03PCT year-on-year. Education revenue mainly came from middle vocational and full-time schools of 0.172 billion yuan, up 5.23% year on year; looking at subsidiaries, Shaanxi Longmen/Tianjin Overseas Travel/Hebi Maotan's revenue was 0.147/0.024/0.002 billion yuan respectively, up -1.19%/27.98%/221.96% year on year. We analyzed that the slight decline in Longmen's revenue was mainly due to increased competition; net profit was 0.037/0.005/0.003 billion yuan, up -18.34%/-14.81% year on year /3.51%, net interest rates were 25.17%/20.34%/-116.46%, respectively, up -5.29/-10.22/245.79PCT year-on-year. Contract debt at the end of 2024H1 was 0.053 billion yuan, up 11.09% year over year. (2) The revenue/net profit/net profit margin of the ink chemical business was 0.196/0.029 billion yuan/ 14.88%, up 1.86%/224.37% /10.21PCT year-on-year. The increase in net profit was due to the company's adoption of a model combining “production ordering” and “inventory procurement” to smooth out the adverse effects of raw material price fluctuations.

The increase in net interest rate was lower than the gross profit margin, mainly due to the increase in management and financial expense ratios and the decline in net return on investment. (1) 2024H1's gross margin was 32.28%, up 0.94 PCT year on year, of which education business/ ink chemical gross margin was 42.46%/23.25%, up -3.88PCT/8.89PCT year on year. The company's net profit margin was 16.97%, up 0.79 PCT year on year. Looking at the cost ratio, the 2024H1 sales/management/R&D/finance expense ratio was 2.41%/6.93%/2.04%/-0.26%, respectively, with a year-on-year increase of -0.72/0.29/0.00/0.28PCT. The decline in sales expenses was mainly due to a decrease in related employee remuneration, business promotion expenses, and service fees; the share of other income increased 0.42PCT to 0.44%; the share of net investment income decreased by 1.74 PCT to -1.73%, and the investment loss of 6 million was mainly affected by SMIC Haoying; (assets+credit) ) The share of impairment losses decreased by 0.7 PCT; the share of asset disposal income increased by 0.1 PCT; and income tax/revenue increased by 0.18 PCT to 3.61%. (2) 24Q2 gross margin was 27.59%, up 1.69PCT year on year; net profit margin was 12.08%, up 0.34PCT year on year. The net margin increase was lower than gross margin mainly due to increased management, R&D, and financial expenses and lower return on investment. Looking at the cost ratio, the 24Q2 sales/management/R&D/finance expenses ratio was 2.56%/7.78%/2.65%/-0.50%, respectively, with a year-on-year increase of -0.39/1.35/0.43/0.42PCT. The share of net investment income decreased by 1.99 PCT to -2.0%; the share of other income increased by 0.55 PCT; (asset+credit) impairment losses decreased by 1.8 PCT; and the share of income tax decreased by 0.04 PCT.

Investment advice

According to our analysis, 1) The company's middle vocational business is expected to maintain a high growth rate. The company has two private for-profit vocational high schools, Xi'an Talent Training and Tianjin Foreign Vocational High School. The company plans to add 2-3 new campuses in these two regions in the future. According to our estimates, we expect to add about 2,000 new students in the future. 2) Comprehensive high schools were launched in various regions this year, and it is expected that vocational colleges under the company will benefit and increase the number of people; 3) The future space for the repeat business lies in the increase in tuition fees and the expansion of market share from other places due to improved class structures. The profit forecast was lowered to 0.95/1.103/1.266 billion yuan to 0.806/0.904/1.016 billion yuan, respectively; 24-26 net profit to mother was reduced to 0.156/0.191/0.233 billion yuan to 0.143/0.162/0.184 billion yuan, corresponding to a 24-26 EPS reduction of 0.47/0.58/0.71 yuan to 0.43/0.49/ 0.56 yuan. On September 2, 2024, the company's closing price was 11.35 yuan, corresponding 24-26PE was 26/23/20X, maintaining a “buy” rating.

Risk warning

Potential risks of policy changes, school expansion progress and campus utilization falling short of expectations, risk of loss of management team and teaching staff, risk of market competition risk, and systemic risk.