The 23-year results were in line with forecasts, and the 24Q1 management level gradually ushered in an inflection point
China Public Education achieved revenue of 3,086 billion yuan (yoy -36.03%) in 23 years, with a net loss of 209 million yuan to the mother, a year-on-year narrowing of 80.98%, in line with the performance forecast (-2.25 to -175 million yuan). 24Q1 achieved revenue of 763 million yuan (yoy -14.08%), net profit attributable to mother of 82.79 million yuan (yoy +240.67%), and positive net operating cash flow. Considering that demand in the industry is still high and the company's refund problem continues to ease, we expect the company to gradually resume endogenous growth in 24. We expect 24-26E revenue of 40.01/47.93/5.578 billion yuan, and net profit to mother of 6.04/9.73/1.52 billion yuan. Comparable company Wind agreed to expect 24E PE to be 28.45x. Considering short-term industry fragmentation and increased competition, long-term companies have brand accumulation and channel advantages, they gave 30x 24E PE with a target price of 2.94 yuan, maintaining the “gain” rating.
Demand for public examinations is growing strongly, and the industry is still in a dividend period
According to the State Civil Service Administration, the number of applicants for the national examination in '24 increased 17% year over year. The number of people who passed the exam surpassed 3 million for the first time, and the registration/admission ratio reached 77:1 (vs 70:1 in the 23 exam season). Competition continues to be intense. The recruitment scale for provincial examinations also continues to expand. According to our statistics, the number of people enrolled in provincial examinations nationwide (excluding Tibet) increased by about 4% year-on-year in '24, and the number of applicants for provincial examinations is expected to increase steadily accordingly. We expect the public examination training industry will still be in a dividend period in the next 2-3 years as the difficulty of admissions continues to increase.
Implement management consolidation plans to reduce costs and increase efficiency
In '23, on the one hand, the company shut down some outlets with low performance output and low manpower efficiency through shutdown and merger, etc., and on the other hand, promoted organizational restructuring, and drastically reduced the number of employees. As of December 31, 2023, the total number of directly-managed branches of the company was 783, yoy -29.65%; the number of employees was 11,125, yoy -50.89%; the number of teaching teachers was 4,565, yoy -49.41%.
In '23, the company's total operating costs fell 50.78% year on year, sales expenses fell 48.51% year on year, and management expenses fell 47.26% year on year; 24Q1 sales and management expenses fell further compared to the full year level of 23, and the results of expenditure side control were remarkable.
24Q1 net operating cash flow improved month-on-month; in the 23 years since the equity incentives were granted, the company gradually completed product restructuring, and the overall refund ratio declined. Combined with a series of cost reduction and efficiency measures, operating cash flow improved. 24Q1's net operating cash inflow of 145 million yuan, all positive year-on-year. In March '24, the company announced the first restricted stock incentive plan in '24, awarding 252 people a total of 39.85 million restricted shares. The grant price was 1.98 yuan/share, and the target value for performance assessment was 400/4.6 billion yuan for 24/25.
Risk warning: the increase in enrollment and customer unit prices fell short of expectations; fluctuating demand for recruitment examinations and training; risk of refunds; loss of core talent; and increased competition in the industry.