Incident: China Public Education released its 2021 Q3 financial report, achieving total revenue of 6.3 billion yuan in the first three quarters, down 15.3% from the previous year; achieving net profit of -890 million yuan, compared to 1.32 billion yuan in the same period last year.
Core views
The external environment has changed greatly, and revenue has been negatively impacted. China Public Education achieved a total revenue of 6.3 billion yuan in the first three quarters, compared to YOY -15.3% in '20, the same as in '19. Comparing 19/20 by sector, civil servants earned 3.14 billion dollars in the first three quarters, up -11%/-21% respectively; public institutions earned 846 million, an increase of +20%/-15% respectively; and the teacher ranking achieved revenue of 690 million, an increase of -24%/-36% respectively. Comprehensive sequence Revenue increased by +62% and +19%, respectively, due to high growth in sectors such as postgraduate studies and IT business.
Product patterns and industry policy changes have combined to limit the redemption of civil servants' serial income. Industry factors, early recruitment and reduced scale led to a decrease in civil service income at the beginning of the year. In terms of product form, the customer unit price for the first three quarters of the 19/20/21 agreement class was 7283/3899/4862 yuan respectively (revenue was confirmed to be lagging behind in Q4 '20). The written test had a great negative impact on the customer unit price. Public institutions as a whole benefited from the expansion of the industry and the continuation of the examination cycle. The number of regular classes increased 66% year over year. The teacher recruitment industry reduced recruitment standards at the same time, and as demand weakened, the decline in income was even more significant.
National examination recruitment is expected to recover in provincial examinations, and advance payments are expected to reach an inflection point. The 2022 national examination plan enrolls 32,200 people (YOY +21%), and the number of applicants reached a record high of 2.123,000. Judging from history, the expansion trend of national and provincial examinations is relevant. It is expected that provincial examinations will expand simultaneously, and the expansion of domestic and provincial admissions is expected to gradually drive advance payments out of an inflection point. Looking at vocational education in the long run, vocational education is encouraged by national policies, and the competitiveness of branded market institutions is strong. The subsequent expansion of multiple tracks is expected to drive more balanced revenue growth. At the same time, the expansion of IT training, intelligent manufacturing, etc. tracks will accelerate the improvement of the company's ability to integrate industry and education and enhance its ability to cooperate with the education system.
Financial forecasting and investment advice
The vocational education circuit emphasizes cost performance. The company has strong ability to collaborate on the track, and its competitiveness in the medium to long term is stable.
The short term was constrained by industry policies and product structure. The company's revenue and profit were lowered, and net profit returned to the mother for 21-23 was predicted to be 1,140/10.08/1,820 million yuan (original forecast of 28.48/36.25/4,508 billion yuan). Long-term leading position competition was strong. Valuation was carried out using free cash flow discount methods, corresponding to a market capitalization of 10.2 billion yuan, corresponding to a target price of 16.26 yuan, maintaining the “buy” rating.
Risk warning
Due to intense investment in chalk Huatu, competition intensified, and the expansion of the new track fell short of expectations
