Investment logic

Smart recruitment: Basic market business requirements are resilient, and first-mover advantages and technical support establish entry barriers. 1H24's smart recruitment business accounts for 62.9% of the revenue, and mainly carries out standardized examination room construction business for educational examination institutes. We believe that the core driving factors for the construction of standardized examination rooms are three: 1) top-level policy design increases penetration rate; 2) technology iteration increases added value; 3) increase in candidates increases market capacity. On the price side, high-definition equipment and video inspection/identity authentication/fraud prevention and control systems from 17 to 21 have added added value with AI functions since '21. On the quantitative side, we judge based on the birth population curve that the number of college entrance examination applicants in China is expected to continue to rise until 2035? The number of supporting examination rooms continues to increase. On the supply side, considering the seriousness of the National Education Examination and the current main demand comes from the upgrading of existing examination rooms, the core competitive element of the industry is “first-mover advantage+technical guarantee”, and the company and Jiafa Education are expected to be strong.

Smart Teaching and Campuses: Smart Classrooms Increase Penetration Rate, AIGC Implementation Education Analysis Report. 1H24's smart teaching and campus business revenue accounts for 24.7%. It mainly provides smart classroom solutions to colleges and universities, and provides AIGC education evaluation reports to colleges and middle schools. 1) Smart classroom: low penetration rate+financial guarantee. In 2023, the penetration rate of smart classrooms in colleges and universities was about 15.3%, and there is plenty of room for improvement; in 2023, the average annual informatization expenses of individual colleges and universities were about 13.18 million yuan, an increase of 11.5% compared with 2021, and financial security is sustainable. 2) AIGC analysis report: Technology is highly accessible and is expected to improve the competitive landscape of the industry. In 2023, the company released the “Starry Sky Education Model”, and has now implemented the AIGC Classroom Quality Diagnosis Report and the Industrial Supply and Demand Assessment Report for university majors. On November 14, '24, the company plans to raise 0.36 billion yuan in capital from specific targets, mainly for industry-education integration projects, multi-modal education big data products, and next-generation AI R&D centers.

Smart rail transit: short-term difficulties are reversed, and business visibility is high in a procyclical context.

The inflection point in the company's short-term performance is mainly due to project acceptance in the smart rail business, and the current order is close to 0.3 billion yuan. The revenue conversion cycle is about 2 to 3 years. In the context of debt conversion and macro-procyclics, it is expected that the ability of urban rail transit customers to pay will improve. The visibility of the smart rail transit business will be high in 25/26, and the revenue fluctuation of the rail transit business in 22-23 is mainly affected by customer payment capacity, and the project cycle is lengthened.

Profit forecasts, valuations, and ratings

The company's revenue for 2024-2026 is estimated to be 0.568/0.681/0.796 billion yuan, net profit to mother is 0.057/0.081/0.114 billion yuan, and EPS 0.38/0.55/0.77, respectively. Using the price-earnings ratio method, the company was given a 25-year 70 times PE valuation, with a target of 38.38 yuan/share. First coverage, giving a “buy” rating.

Risk warning

The risk that the medium- to long-term growth rate in the number of standardized examination rooms will fall short of expectations; the risk of increased competition between smart campuses and the teaching industry; and the risk that education expenses fall short of expectations.