Focusing on higher education and middle employment, the main education and ink business achieved steady growth in the first three quarters of 2024, the company achieved revenue of 0.578 billion yuan, an increase of 3.15% year on year; of these, revenue of 0.208 billion yuan was achieved in 2024 Q3, an increase of 1.98% year on year. In the first three quarters of 2024, the company achieved net profit of 0.105 billion yuan, +5.13% year on year, net profit margin of 18.36% year on year, +0.61 pct year on year, of which net profit to mother in 2024 Q3 was 42.98 million yuan, +1.53% year on year, and a net profit margin of 20.85% to mother, +0.35 pct year on year. The main education and ink business has achieved steady growth, and the increase in the share of high-profit middle employment businesses has led to structural optimization, which has led to an increase in profit margins. We maintain our profit forecast for 2024-2026. We expect net profit to be 0.161/0.192/0.225 billion yuan for 2024-2026, yoy +15.9%/+19.8%/+16.7%, corresponding EPS 0.49/0.58/0.68 yuan. The current stock price corresponds to PE of 34/28.4/24.3 times, maintaining a “buy” rating.

Vigorously develop secondary vocational education, optimize costs and expenses, and transform Zhonghao Xinying's profits into the education business: The National Education Conference was held in September 2024. The conference emphasized speeding up the modernization of education and building a vocational education system integrating employment and education. In 2023, there were 16.24 million middle school graduates nationwide and 9.68 million students enrolled in ordinary high schools. The initial admission rate was 59.6%. There are still 6.56 million middle school graduates unable to advance to ordinary high schools, and the career integration circuit has broad potential for development. Costs and expenses: 2024Q3's gross margin was 60.4%, +1.26pct year on year; sales expense ratio was 5.62%, -0.17pct year on year; management expense ratio was 5.96%, -0.57pct year on year; R&D expenses rate 2.29%, -0.47pct year on year; 2024Q3 achieved investment income of 0.42 million yuan. Zhonghao Xinying's business was calculated centrally at the end of the year. It is expected that most of the revenue and profit will be confirmed in 2024Q4.

AI chip giant Zhonghao Xinying received another capital increase. From September to October 2024, Zhonghao Xinying (Hangzhou) expanded its shares in three batches, receiving a total capital increase of about 0.6 billion yuan. Combining strategic development and actual business conditions, it introduced strategic investors such as Hangzhou state-owned capital, Ali, and Covos. As of the last round of financing, Zhonghao Xinying's valuation was about 3.6 billion yuan, and Cod Education's shareholding ratio of Zhonghao Xinying was diluted to 6.5014%. As an AI chip rookie, Zhonghao Xinying developed its own TPU chip supercomputing cluster. Compared with GPUs, it can achieve higher performance and lower energy consumption when processing large-scale AI model training and inference tasks.

In October 2024, Zhonghao Xinying was awarded the title of a national-level specialized and innovative “Little Giant” enterprise. As major companies such as Byte and Ali increase their investment in AI models, domestic AI chip companies are expected to start a new industrial cycle.

Risk warning: Risks such as the construction of a new campus, falling short of expectations in enrollment, and falling short of expectations in sales of Zhonghao Xinying.