Main points of investment

Affected by the epidemic, the company's enrollment and revenue in 2020 were 531000 and 1.69 billion yuan, respectively, a decrease of-3.7% and-7.9% over the same period last year:

In fiscal year 2020, the company's income was 1.688 billion yuan, down 7.9% from the same period last year; gross profit was 615 million yuan, down 19.9% from the same period last year; and the profit attributable to the owner of the parent company was 130 million yuan, down 4.3% from the same period last year.

The net profit margin of homing was 7.6%, compared with 7.4% in the same period last year. The number of training centers reached 268, of which 18 were newly opened, 12 were under merger management, and 3 were converted to full-time business. Looking back at the first half and the second half of 2020, the business most affected by the epidemic in the first half of the year was personalized counseling, followed by class support, while the second half of the year has returned to positive growth. 2020H1 class income is down 9.5% from the same period last year, and individual income is down 20.8% from the same period last year. 20H2 class income is down 10% from the same period last year, and individual income is recovering to 5.6%.

In 2020, the company laid a solid foundation, the retention rate continued to improve, and the expansion of Shenzhen was carried out steadily:

The annual retention rate of excellent education in 2020 is 87.5%, an increase of 4.5% over the same period in 2019. Of the 18 new campuses, 9 have been opened in Shenzhen. Under the epidemic, revenue in Shenzhen increased by 9.6% in 2020 compared with the same period last year. Shenzhen has formulated the "663 Plan", which plans to achieve 60% growth in each of the next three years, with 60 campuses and revenue of 300 million in three years' time. Strategically, the Group has raised the "digital transformation" to a strategic height for the first time, keeping pace with the regional expansion and strong language strategy.

Maintain the buy rating and maintain the target price of HK $3.6:

In the first half of 2021, the company achieved a growth rate of 35% and 40%, and originally planned to open about 50 new training centers every year, but due to some uncertainty in the education and training industry policy, the new store opening plan in 2021 will be adjusted according to the implementation of specific policies. Considering that the Ministry of Education has made great efforts to crack down on the out-of-school training industry in 2021, there is some uncertainty in the regional expansion and enrollment of the out-of-school training industry. We estimate that the annual revenue in 2021-22-23 will be 21.0 / 25.8 / 3.11 billion yuan, and the net profit will be 1.64 / 2.14 pm 286 million yuan, corresponding to 0.21 EPS 0.271 0.36 yuan. The current price of the company is 2.73 Hong Kong dollars, which is about 11.2 times the 2021 PE. The target price is HK $3.60, corresponding to 15 times PE of 2021E, maintaining the buy rating.

Report body

Affected by the epidemic, the company's enrollment and revenue in 2020 were 531000 and 1.69 billion yuan, respectively, a decrease of-3.7% and-7.9% over the same period last year:

In fiscal year 2020, the company's income was 1.688 billion yuan, down 7.9% from the same period last year; gross profit was 615 million yuan, down 19.9% from the same period last year; adjusted net profit was 144 million yuan, down 12.9% from the same period last year; and the profit attributable to the owners of the parent company was 130 million yuan, down 4.3% from the same period last year. The net profit margin of homing was 7.6%, compared with 7.4% in the same period last year. The number of training centers reached 268, of which 18 were newly opened, 12 were merged and 3 were converted to full-time business use.

During the reporting period, the company enrolled 530800 students, a decrease of 3.7% compared with the same period last year, and the total tutoring hours were 12.2571 million hours, a decrease of about 10.5% compared with 2019. It is worth noting that business recovered somewhat in the second half of 2020, with revenue of 920 million yuan in the second half of the year, down 4.7% from the same period last year. Looking back in the first half and the second half of 2020, personalized counseling was the most affected business in the first half of the year, followed by class support, while the second half of the year had returned to positive growth.

2020H1 class income is down 9.5% from the same period last year, and individual income is down 20.8% from the same period last year. 20H2 class income is down 10% from the same period last year, and individual income is recovering to 5.6%.

In 2020, the foundation of excellent education has been consolidated, the retention rate has continued to rise, and the expansion of Shenzhen has been carried out steadily. The annual retention rate of excellent education in 2020 is 87.5%, an increase of 4.5% over the same period in 2019. Of the 18 new campuses, 9 have been opened in Shenzhen. Under the epidemic, Shenzhen's revenue in 2020 increased by 9.6% compared with the same period last year, the number of regular classes increased by 9.1%, and individual auxiliary class hours increased by 6.3% compared with the same period last year. Shenzhen has formulated the "663 Plan", which plans to achieve 60% growth in each of the next three years, with 60 campuses and revenue of 300 million in three years' time. Strategically, the Group has raised the "digital transformation" to a strategic height for the first time, keeping pace with the regional expansion and strong language strategy. In the first half of 2021, the company achieved a growth rate of 35% and 40%, and originally planned to open about 50 new training centers every year, but due to some uncertainty in the education and training industry policy, the new store opening plan in 2021 will be adjusted according to the implementation of specific policies.

Maintain the buy rating with a target price of HK $3.60:

Despite the haze of the epidemic in 2020, the company's re-education rate increased significantly to 87.5%, and increased sales costs, focusing on attacking the Shenzhen market. Nine new training centers were added in Shenzhen in the past year. At present, the regional expansion of excellent education has achieved preliminary results. Considering that the Ministry of Education has made great efforts to regulate the out-of-school training industry in 2021, there is some uncertainty in the regional expansion and enrollment of the out-of-school training industry. We estimate that the annual revenue in 2021-22-23 will be 21.0 / 25.8 / 3.11 billion yuan, and the net profit will be 1.64 / 2.14 / 286 million yuan, corresponding to 0.21 EPS 0.2711 0.36 yuan. The current price of the company is 2.73 Hong Kong dollars, which is about 11.2 times the 2021 PE. The target price is HK $3.60, corresponding to 15 times PE of 2021E, maintaining the buy rating.

Risk Tips:

Risk of strict supervision of K12 training industry.

Remote expansion is not as expected: there is a risk that the company's training center can continue to expand in the Greater Bay area, and there is also uncertainty about whether the store efficiency can meet expectations.