Event: in 2020, the company achieved an income of 356 million yuan, a decrease of 43.4%, a net profit of-478 million yuan, a decrease of 499%, a net profit of 527 million yuan, a decrease of 562%, and earnings per share of-0.58 yuan per share, a decrease of 514%.

Comments:

The domestic epidemic affects the business of early education. 2020Q1 more than 70% of the stores closed, by the end of Q2, about 70% of the stores resumed classes, by the end of Q3 stores basically resumed normal business, Q4 epidemic repeatedly led to the suspension of classes in some areas, seriously affecting the business of early education. In 2020, the income from early education services was 239 million yuan, a decrease of 42%, of which the equity fund was reduced by 38%, mainly due to the suspension of classes in stores, 44% in franchise fees and 65% in product sales, mainly due to the lower-than-expected growth of stores caused by the epidemic. The gross profit margin is reduced by 10.1pct to 67.7%, and the net profit margin is reduced by 16.7pct to 41.2%. Although affected by the epidemic, early education is still expanding against the trend, adding 40 stores in 2020, laying the foundation for growth after the epidemic.

The service of studying abroad is affected by the epidemic situation overseas. In 2020, most customers turn to online training, so it is difficult to fully copy the effect of offline teaching, resulting in the withdrawal or postponement of some students, and the postponement of the grade of studying abroad also causes the loss of some customers. Kai de took the initiative to adjust its business strategy and close some campuses. In 2020, the income from overseas study and training was 46.35 million yuan, with a reduction of 45%, the gross profit margin was reduced by 19.1pct to 45.5%, and the net profit rate was reduced by 18.5pct to 17.9%.

Kai de and Mejem set aside the impairment of goodwill, while Meijem increased the bet for 21 years. The impairment of goodwill is 240 million yuan in Kai de Education and 390 million yuan in Mejem, resulting in a sharp decline in the company's profits in 2020. Mejem's original performance commitment was extended to 21 years, and the other party promised to deduct a net profit of not less than 301 million yuan for 21 years, reflecting confidence in the recovery of performance.

Investment advice: in the context of the global epidemic, Mejem and Kaide have been seriously affected, but they are still making a positive profit, among which Meijin stores are still expanding against the trend, laying the foundation for follow-up development. Mejem and Kaide plan to mention the impairment of goodwill, which is expected to travel light to ease the market's concern about the impairment of goodwill in the future. The annual net profit on 2021-22-23 is expected to be 2.01 trillion yuan, corresponding to the valuation 23x/20x/17x, and is optimistic about the company's leading position in the early education industry. Maintain the "buy" rating.

Risk hint: after the epidemic, the recovery of early education business is not as expected, and the business of studying abroad and training continues to be affected by the overseas epidemic.