Performance fell short of expectations due to impairment of goodwill. The company following the subsequent offsite expansion process announced its 2020 annual report and 2021 quarterly report, which achieved revenue of 849 million yuan (-11.47%) in 2020 and net profit of 114 million yuan (+42.00%). Among them, 2020/Q4 achieved revenue of 234 million yuan (-10.96%) and net profit of -0.04 billion yuan (-128.45%). The performance fell short of expectations mainly due to the impact of the pandemic on Halong Men Education's new credit loss of 36.15 million yuan. In addition, 2021Q1 achieved revenue of 213 million yuan (+24.90%) and net profit of 32 million yuan (+46.83%) to the mother, mainly driven by the 100% merger of Longmen Education after April 2020. Considering that the epidemic has slowed the enrollment process and the impact of China's supplementary policy, we lowered our 2021-2022 earnings forecast. It is estimated that the company's net profit for 2021-2023 will be 1.69 (-0.70) /2.09 (-0.77) /240 million yuan respectively, and the corresponding EPS is 0.57 (-0.24) /0.70 (-0.26) /0.81 yuan. The current stock price corresponding to PE is 22.0/17.9/15.5 times, but as the company gradually expands and implements its overseas expansion layout in various provinces of the country, the company is expected to grow into the country A leader in college entrance examinations and maintains a “buy” rating.
The epidemic compounded by China's supplementary policies dragged down performance growth. As ink business divestiture progressed, the 2020 Q1 company's fully closed training could not be carried out properly, and the postponement of the college entrance examination dragged down the development of short-term summer vacation classes such as sprint classes. At the same time, repeated epidemics have also caused the enrollment of students in the closed tutoring business for the 2020 fall college entrance examination to fall short of expectations, and the Chinese supplementary policy has also led to a decrease in the number of students enrolled in the company's secondary school entrance examination tutoring business. In response to the epidemic, the company added new closed short-term businesses such as weekly trusteeship classes and weekend classes, effectively opening up incremental markets. Furthermore, the company plans to consolidate and transfer all assets, debts, and resources related to the ink manufacturing business to a wholly-owned subsidiary to prepare for subsequent divestment. In the future, the company will transform into a pure education company.
Expansion from other locations is speeding up the layout, and leading students in the college entrance examination can be expected
While stabilizing the basic market in Shaanxi, the company is actively carrying out offsite expansion initiatives in various provinces across the country. Currently, it has carried out offsite expansion plans in Changsha, Hefei, Tianjin, Henan and other provinces and cities. Among them, schools in Henan have completed the registration of industrial and commercial changes, and plans to cooperate with Huiwen Shaolin Group to speed up the offsite replication process. In the future, the company will continue to expand its secondary, general and college entrance examination repetition business from other locations. It is expected that Code Education will break out of Shaanxi with its completely closed strict management model and efficient ability to raise points, and grow into a leading national college entrance examination training leader.
Risk warning: The pandemic has affected enrollment plans; the offsite expansion process has fallen short of expectations.