Key points of investment

24Q3 revenue/net profit to mother yoy +0.3%/5.7%, and the proposed cash dividend for the first three quarters of 24 was 91%.

Thanks to high repurchases and word-of-mouth fission driven by major customers, the first three quarters of 24 achieved revenue of 0.563 billion yuan, an increase of 22.1%; net profit to mother of 0.195 billion yuan, an increase of 21.1%; 24Q3 achieved revenue of 0.173 billion yuan, an increase of 0.3%, and net profit to mother of 0.058 billion yuan, an increase of 5.7%. The company announced a dividend plan for the third quarter for the first time, and plans to distribute a total cash dividend of 0.178 billion yuan, accounting for 91.32% of net profit attributable to mother.

Q3 Revenue is under pressure, which is probably mainly due to a slowdown in the pace of EMBA concentration classes.

We expect that the slowdown in the pace of EMBA concentration classes will affect revenue, the market environment will affect the learning sentiment of enterprise customers, and the desire to study on-site may be delayed. The main thing is that each course generally lasts 3 days, which requires a certain amount of time and financial costs. Most of the concentrated EMBA students are middle and senior management and distributors of the enterprise, and the impact may be greater than that of the principal's EMBA students. As the policy side increases and market sentiment recovers, Q4 is expected to usher in a recovery in the pace of school consumption.

Cash receipts remained flat year on year from January to September '24. Major customer strategies focus on the growth rate and steady performance of receipts.

From the perspective of corporate budgets, Q3 has always been a low season for the company to collect payments. The combination of the customer transformation process has led to the characteristics of lengthening short-term major customer development and course consumption cycles and delays in payment pace. It is recommended to focus on the performance of the Q4 peak season.

At the end of 24Q3, the contract debt was 0.965 billion yuan, yoy +10%. We expect 70% of the management training business contract debt to come from the principal's EMBA (1.5 year course withdrawal cycle) and 30% from the concentrated EMBA (1 year course withdrawal cycle), which corresponds to an increase of 1.35 years in the future. We expect that the price of the 25-year enrichment and principal course will continue to increase, and the certainty that performance growth will be realized will further increase.

Product restructuring affects gross profit margin, and cost rate control is relatively healthy.

The 24Q3 company's gross profit margin was 75.38%. Compared to -3.2 pct, it is mainly due to the rapid increase in the share of consulting services with low gross margin levels after product restructuring, and the profitability of concentrated EMBAs with high gross margins and stable profitability of principal EMBAs with high gross margins. The 24Q3 sales/management/R&D expense rates were 29.39%/12.74%/2.43%, compared with +2.1/+1.2/-1.6pct, mainly due to increasing sales staff reserves and increasing market development efforts. We anticipate stable 24-year gross margins and expense ratios due to customer experience and internal incentives.

The high dividend returns close to 100% to shareholders, with a dividend ratio of about 5%.

The company's cash dividend payment rate from January to September 2021/2022/2023/2024 was about 109%/213%/97%/91%. Of these, the mid-term dividend plan was disclosed in 2023 and 2024, and the third quarter dividend plan was disclosed for the first time in 2024. It is still expected to pay dividends more than one year in the future. We hypothetically calculate the dividend ratio from January to September '24, and the company's dynamic dividend ratio is about 5% (corresponding to the closing price of October 23, 2024).

Profit forecasting and valuation

The differentiated advantage of action education comes from the effectiveness of the curriculum. It accurately positions effective courses for president-level executives in the trillion-dollar enterprise training circuit, strategically focuses resources on major customers to increase repurchases, while reducing the impact of the external environment on revenue growth. The period of word-of-mouth fission increases the continuous expansion of customer strategies and market share. We expect the company's revenue for 2024-2026 to be 0.783/0.909/1.04 billion yuan, up 16.46%/16.13%/14.39% year on year; net profit to mother will be 0.259/0.302/0.348 billion yuan, respectively, up 18.16%/16.30%/15.24% year on year. We are optimistic about the stability and high dividend characteristics of the company's business model. The management goes deep into the marketing front line to lay a solid foundation for major customer strategies, actively expand target customer areas and regions, and recommend paying attention to order fluctuations and whether 24Q4 payments are recovering, and maintaining a “buy” rating.

Risk warning

Risks arising from changes in the macroeconomic situation; risk of market competition; risk of turnover of key business personnel; uncertainty of payment collection and revenue recognition