Main points of investment:
In 2020, the performance was dragged down by the epidemic, and 21Q1 turned losses into profits. In 2020, the company achieved an operating income of 356 million yuan (YOY-43.41%) and a net profit of-478 million (YOY-499.41%). On the one hand, the performance dropped sharply because COVID-19 's epidemic seriously affected the normal operation of the company's early education stores, on the other hand, it included an impairment of 632 million of assets, mainly from 20Q4 due to the impairment of goodwill of Meijem and Kai de Education. With the recovery of the impact of the epidemic, 20Q1 achieved revenue of 80.0943 million, an increase of 39.32% over the same period last year, and a net profit of 7.5911 million, turning losses into profits.
The early education center is growing against the trend, and the performance gambling target has been extended to 2021. The company's early education business is mainly taught in offline stores. In 2020, the outbreak of COVID-19 and its repeated effects led to the periodic suspension of classes in some stores, a significant decline in superimposed joining business, and less than expected growth in the number of new stores. For the whole year, early education services achieved revenue of 239 million (YOY-41.67%), gross profit of 162 million (YOY-49.22%) and gross profit of 67.66% (YOY-10.06pct). By the end of 2020, there were a total of 555 signing centers for Mei Jim and Little Jim in Chinese mainland area, with 40 new stores opened throughout the year, bucking the trend and at a high level in the industry. In 2020, the subsidiary Tianjin Meijem had annual revenue of 235 million yuan (YOY-42.84%) and net profit of 96.943 million (YOY-59.34%), which failed to meet the target of cumulative performance commitment in 2020 and the past three years, and provided for 392 million of the provision for impairment of goodwill, but considering the epidemic factors and production and operation, the company decided to adjust the performance commitment period of Meijem and draw up a commitment of 301 million net profit in 2021.
Overseas study training is affected by the overseas epidemic and is expected to recover with the improvement of the epidemic. Kai Tak Education achieved revenue of 46.3511 million yuan (YOY-44.81%) in 2020, gross profit of 45.52% (YOY-19.08pct) and net profit of 8.2797 million yuan (YOY-72.89%), accounting for 239 million of goodwill impairment. In order to deal with the impact of the epidemic at home and abroad, the company has carried out online and offline teaching, and at the same time actively adjusted its business strategy and adopted measures such as shutting down Beijing International Trade Campus and Shenzhen Campus to reduce costs and increase efficiency.
Formally divest the machinery manufacturing business and focus on the main business of education. In 2020, the machinery manufacturing business achieved an income of 71 million (YOY-47.80%) and a gross profit margin of 24.12% (YOY-21.34pct). During the reporting period, the company has divested the assets and businesses related to traditional manufacturing through the transfer of 100% equity interest in Dalian third Base Technology Co., Ltd., and changed its dual main business from education and machinery manufacturing to educational services, educational consulting and related industries.
Raise the profit forecast and maintain the overweight rating. With the popularity of COVID-19 vaccine and the recovery of the epidemic situation since 2021, the business of the company's offline early education stores has resumed well. it is expected that the overall store operation will gradually return to normal, and the expansion rate of stores is expected to pick up. There is still a trend of concentrated improvement in the industry for a long time. Taking into account business recovery and performance betting, we raise our profit forecast from 2021 to 2022 to 200 million and 231 million (the original forecast is 154 million and 194 million), and increase the profit forecast for 2023 to 272 million, corresponding to a valuation of 25Xpr 21X 18x. As the education business still has long-term predictable growth and cash flow, it continues to maintain its overweight rating.
Risk hint: the number of new stores and the pace of business recovery are lower than expected, and the completion of performance commitments is lower than expected.