Undertake the Huatu Education brand and transform the recruitment and training circuit. On October 11, 2023, Huatu Education Technology, a wholly-owned subsidiary of the listed company, and Huatu Hongyang, the indirect controlling shareholder of the company, signed the “Intangible Assets Free Authorization Agreement”. Huatu Hongyang will license intangible assets related to the recruitment and training business to Huatu Education Technology for use free of charge, and there is no license fee for this license. At the same time, Huatu Hongyang stopped admissions work and delivered existing courses to listed companies, withdrew from related fields, and avoided competition in the industry. The strategic focus of listed companies gradually changed from the main business of construction engineering design to recruitment examination and training business.

Huatu Education (the listed company plans to undertake assets) is a traditional leader in the public examination industry. It has unsuccessfully impacted the capital market many times in history, and the overall business style has remained stable (2015-2017/2020-2022 revenue 13.2/18.9/22.4/1.74/1.49/2.1 billion, respectively). The company has accumulated extensive offline written tests and interviews. In 2015-2017, the company achieved revenue of 2.11 billion yuan in the first three quarters of 2023; gross margin for the same period was 59.1%/60.8%/54.6%/46.9%/53.1%/55.1%, and the gross profit margin for the first three quarters of 2023 was 59.0%, which improved profitability significantly (Note: There is a slight difference between the gross margin caliber in 2020-2023 and the previous one); in 2015-2017, it achieved net profit to mother of 0.21/ 0.34/0.37 billion yuan. As of the end of June 2018, the number of training centers was 394.

Net profit of 0.129 billion yuan was achieved in the first three quarters of 2024, helping to launch a new recruitment business. In the first three quarters of 2024, the company's revenue was 2.131 billion yuan/ +4702%, net profit due to mother 0.129 billion yuan/ +3595%, after deducting non-return net profit of 0.102 billion yuan/ +1641%. 2024Q3, the company's revenue was 0.625 billion yuan/ +4964%, net profit attributable to mother 7.83 million yuan/ +4064%, after deducting non-net profit of 3.63 million yuan/ +351%. The year-on-year increase in revenue and profit is due to the smooth development of the non-academic training business, which has helped the operation. Sales revenue for the third quarter was 0.832 billion yuan, and contract debt at the end of the third quarter was 0.894 billion yuan, up from the end of the second quarter (0.759 billion yuan).

Non-academic training structurally improved profit margins, and net interest rates declined marginally in the third quarter. In the first three quarters of 2023, the company's gross profit margin was 57.90% (Huatu Education's gross margin of 59.0% for the first three quarters of 2023), +41.2pct year on year; net profit margin was 6.07%, a year-on-year increase of +14.4pct. The significant year-on-year improvement in profit margin was a structural improvement injected into non-academic businesses; however, the 2024Q3 net interest rate was only 1.25%, a marginal decline from the first half of the year (8.07%). In the first three quarters, the company's rate for the period was 51.99%, compared to +28.15 pct. Among them, sales/management/R&D/finance rates were +27.62/-3.32/+2.62/+1.23pct, respectively. Among them, the sharp increase in sales rates was affected by the increase in sales wages and remuneration for non-academic training. 2024Q3, the rate for the period was 60.73%, +35.60pct. Among them, the sales/management/ R&D/finance rates were +33.00/ -3.87/+5.29/+1.17pct, respectively. The decline in Q3 net interest rate was affected by the increase in sales expenses.

The number of people recruited for the national examination continued to rise steadily, and industry competition led to a decline in CR3's share of the circuit. Registration for the 2025 National Examination begins on October 15, and the plan is to recruit 0.0397 million/ +0.4% this year. There has been a steady increase, but the rate of enrollment expansion has moderated marginally (7% expansion in 2024). The qualification examination for the national examination was completed on October 26. A total of 3.416 million people applied for the 2025 national examination, a year-on-year ratio of +13%. The ratio of successful applicants reached 86:1. It is expected that the recruitment and training track will maintain a high level of prosperity. Referring to Frost & Sullivan's data estimates, we estimate that CR3 of the top 3 institutions in the 2024 public examination will decline slightly year-on-year. It is expected to be affected by a combination of factors such as increased competition at low prices in the industry and the fact that some institutions still need to resolve historical operating burdens.

Risk warning: declining consumption power; stricter policies; increased competition; new growth curves falling short of expectations, etc.

Investment advice: Listed companies have gradually taken on non-academic training services during the period, and strategic transformation has significantly enhanced the company's operating performance. Although the public examination recruitment circuit is still booming, there is still competitive pressure at low prices in the industry. Based on the above reasons, we carefully estimate that the company's 2024-2026 revenue will be 2.52/2.89/3.3 billion yuan, and net profit to mother will be 0.168/0.203/0.241 billion yuan (the sharp increase in revenue and profit was originally predicted to only take into account traditional architectural design business contributions). The corresponding PE is 62/52/43x. Considering the competitive pattern and valuation level, it is recommended to track changes in the competitive pattern and Profitability improvement progress.