1. Performance improvement: management improvement brings 20Q4 inflection point, and 21Q1 is expected to continue. The company's language business 2020Q4 signals from the inflection point: (1) from the perspective of 2020Q4, the company announced that the winter vacation class continuation rate reached an all-time high of 84%; (2) the Q4 collection amount increased by 38% to 165 million yuan over the same period last year; and (3) the Q4 revenue increased by 125% to 298 million yuan compared with the same period last year. We judge that the improvement trend is expected to continue in Q1 and is expected to be further reflected in summer enrollment in April and May.
2. Management change: from manpower-driven to organization-driven. (1) strategically, re-pay attention to offline, moderately slow down the pace of store opening, and the core in 2021 is to strengthen the three cities of Shanghai, Shenzhen and Guangzhou; (2) in management, the company implements the model of "separation of powers"; (3) in terms of talents, introduce marketing and IT talents, and strengthen KPI assessment. (4) in marketing, in the future, we will strengthen offline advertising, increase online access to social groups, problem-solving tools, expansion and other ways of traffic investment.
3, the expectation of governance improvement: the fixed increase is expected to accelerate after landing. We judge that the path to improve corporate governance in the future is roughly as follows: (1) before the completion of the fixed increase, the company promises that there will be no significant change in the actual controller within 18 months; (2) after 18 months, Mr. Dou is expected to increase the share of equity through equity incentives, shareholding and other ways.
4. Divestiture of non-main business assets: release resources for focusing on the big language. Considering that the company has set aside 17-2.1 billion yuan of goodwill impairment in 2020, and the asset loss caused by the sale of the remaining assets for sale is limited in the future, the company is expected to accelerate the divestiture of non-main business assets in 2021, freeing up more strategic resources for focusing on large language business.
Profit forecast and investment suggestion
Taking into account the decline in non-large language business, it is estimated that the company's 20-22 revenue will be updated from 20-26-32 to 20-24-29, and its net profit will be updated from-19.8 billion to-1.98 billion. We believe that the company's language business inflection point signal is clear, the future is expected to return to the high growth track, non-language business has been fully calculated for impairment, corporate governance is expected to gradually improve, maintain the buy rating, comprehensive absolute valuation and relative valuation, give the target market value 21 billion yuan, target price 24.41 yuan (corresponding to 2022 50 times PE), basically close to 2020.3.10 target price 24.11 yuan.
Risk hint
Uncertainty of fixed increase progress; uncertainty of non-main business divestiture; lower-than-expected pace of store opening; lower-than-expected risk of endogenous improvement; systemic risk.