Description of the event

First three quarters: Revenue 0.563 billion yuan, +22.07% YoY, net profit to mother 0.195 billion yuan, +21.12% YoY, net profit after deducting 0.186 billion yuan, +18.72% YoY.

Single quarter: revenue 0.173 billion yuan, +0.27% year over year; net profit to mother 58.41 million yuan, +5.74% year over year; net profit after deduction of 49.39 million yuan, -15.19% year on year.

It is proposed to distribute a cash dividend of 5 yuan (tax included) for every 10 shares. The total proposed discovery bonus is $59.6256 million (tax included). As of the announcement date, the company plans to distribute a total cash dividend of 0.178 billion yuan (tax included) in 2024, accounting for 91.32% of net profit attributable to mother.

Incident comments

The demand side may be suppressed by the economic environment, and contract debt has continued to grow compared to the beginning of the period, which is invaluable. In the third quarter of a single quarter, the company's revenue growth rate slowed significantly compared to the first half of the year, or was mainly due to sluggish demand, new orders in the early stages and low delivery of current courses; however, contract liabilities at the end of the period still increased compared to the beginning of the period, demonstrating the comparative advantages of listed companies in terms of products, brands, and operations. By the end of the third quarter, the company's contract debt was 0.965 billion yuan, up +0.7% from 0.958 billion yuan at the beginning of the year.

In terms of profitability, gross margins are under pressure, expense ratios have increased, and government subsidies drive an increase in net profit to mother. In the third quarter of the single quarter, the company's gross profit margin was 75.38%, and the sales/management/R&D/finance expenses ratio was +2.13/+1.24/-1.60/+0.12 pcts year over year, respectively. Among them, the increase in sales expenses may be related to the increase in advertising expenses. The total gross margin and period expense ratio were -2.28 pcts year over year, leading to a year-on-year decline in net profit after deduction of non-return to mother. However, government subsidies and other non-revenue contributed to a year-on-year correction in net profit to the mother.

In terms of management and operation, the company shortens the assessment cycle, survives the fittest, improves organizational efficiency, and improves per capita performance by building a team of professionals. Currently, the company's talent team construction has been very effective, forming a high-quality system for selecting and cultivating talents, enhancing the professionalism of business personnel, and providing organizational guarantees for the continuous and steady growth of the company's performance.

Looking ahead to the future market, I am optimistic that the company will adhere to a “grounded and pragmatic” product positioning, keep up with market demand trends, continue to iterate and update to overcome the low demand; continue to implement the big customer strategy, use customer referrals and repurchases as the main customer acquisition methods, optimize the customer structure, open up market coverage, and reserve potential high-quality customers; wait for demand repair to improve per capita performance and the company's overall profit margin with a more professional talent pool and more efficient management model.

It is estimated that in 2024-2026, the company's net profit to mother will be 0.25, 0.3, and 0.36 billion, respectively, and the corresponding PE will be 17, 15, and 12X, respectively, maintaining a “buy” rating.

Risk warning

1. After the price increase of core products, demand from some customers declined;

2. The economic environment is under pressure, and some companies are reducing training expenses; 3. Competition in the industry intensifies, competitors with similar positions have increased; 4. Core team members have been lost, and course sales fall short of expectations.