Minsheng Education announcement plans to acquire a 51% stake in Xiaoai Technology for no more than 80.06 million yuan, cut into the human resources track, and is expected to form good coordination with the education business. This acquisition is another new attempt by the company following the expansion of vocational education (acquisition of Minsheng online, RTVU online, Duxue network), in order to better create an integrated recruitment and training platform and achieve closed-loop personnel training. We are optimistic about the company's rich layout in the areas of higher education, vocational education and human resources, with a target price of HK $1.80 and a "buy" rating.
Transaction: it is proposed to acquire 51% stake in Xiaoai Technology for no more than 80.06 million yuan. On July 16, the company announced the signing of an equity investment agreement to acquire a 51% stake in Xiaoai Technology at a total cost of no more than 80.06 million yuan in the form of equity acquisition and capital increase. At the same time, Xiaoai Technology promised to deduct a total non-tax net profit (excluding profits generated by the business cooperation between Xiaoai Technology and Minsheng Education) of not less than 15 million yuan in the 2021-23 fiscal year.
Small love technology: a start-up focused on human resources SAAS, with revenue of 196.6 per cent CAGR in the past three years. 1) Business: founded in 2017, Xiaoai Technology is an integrated provider of flexible employment platform and HRO SAAS services. Its products include Ailingong (flexible employment platform) and Yunzhiai (HRO SaaS system). Ailingong helps enterprises to complete one-stop task distribution, fee settlement and payment, invoice and tax payment. Yun Zhiai provides customers with complete HRO SAAS+AI solutions to meet a variety of business scenarios, such as personnel agency, labor dispatch, job outsourcing, social security agency and so on. At present, there are nearly 700 human resources enterprises and about 10800 employers on the platform, accumulating a labor pool of about 3 million people. 2) team: the founder of the company, Ms. Tan Huafang, is a PhD in the Institute of Computing Technology of the Chinese Academy of Sciences. She has worked in IBM China Research Institute and Lenovo Enterprise Cloud. The core team comes from well-known technology and human resources companies such as IBM, Lenovo, Baidu, Inc. and Yicai. After the deal was completed, the original core team held 49% of the shares. 3) Finance: the company is growing rapidly, and its revenue has increased from 1.327 million yuan in 2018 to 11.67 million yuan in 2020, with CAGR reaching 196.6%.
Strategic significance: cut into the fast-growing human resources market to form an integrated platform for recruitment, training and education. 1) the size of China's human resources service market is nearly 500 billion yuan in 2019, of which flexible employment reached more than 70 billion yuan, with 26% of CAGR in 2014-2019. China's flexible employment penetration rate is currently less than 1 per cent, much lower than that of the US / Japan / Europe, and CAGR is expected to reach more than 20 per cent in the next three to five years, driven by policy encouragement and industrial structure.
2) the higher vocational education business of Xiaoai science and technology and people's livelihood education can form a good coordination: a) solve the problem of talent training and export, and provide employment services for 100,000 full-time college students, more than 1 million online junior college students, and more than 20 million users of vocational education platform; b) provide enterprise internal training and educational services for the promotion of academic qualifications for the enterprise users of Xiaoai science and technology. C) through Xiaoai science and technology to deepen people's livelihood education's understanding of the job needs in the job market, so as to feed back to the update of curriculum, major, training and other contents.
Risk factors: the progress of acquisition is not as expected; the progress of campus expansion and new enrollment are not as expected; industry policy changes
Investment suggestion: taking into account the 100% consolidation of TVU online and Minsheng online, we raise the company's 2021-23 net profit forecast to RMB 670, 021, 000,000 (the original forecast was RMB 641, 761, 903 million), and the core net profit is RMB 697, 856, 025 million, corresponding to the core EPS of RMB 0.17, 0.20 and 0.24. With reference to comparable company valuations (China Kepei 2021 PE 12x, New higher Education 2021 PE 11x, China Xinhua Education 2021 PE7x), the company is given a core PE 10x for 2021, corresponding to a target price of HK $1.80 and maintaining a "buy" rating.