I. Incidents

Entrepreneurship Dark Horse released its 2019 annual report and 2020 quarterly report: in 2019, the company achieved operating income of 213 million yuan, a year-on-year decrease of 36.49%; the net profit of the mother was 16 million yuan, an increase of 21.55% over the previous year; after deducting the net profit of the non-Gumi mother, an increase of 494.32% over the previous year. 20Q1 achieved revenue of 17.9 million yuan, a year-on-year decrease of 59.33%; the net profit loss of the mother was 3.49 million yuan, a decrease of 134.58% over the previous year; and net profit loss after deducting the non-return mother was 3.14 million yuan, a decrease of 132.69% from the previous year.

II. Our analysis and judgment

The company is a leading organization in the entrepreneurship training and startup services industry. Platform-based coaching and training products represented by “Dark Horse Labs” have achieved scale effects. Second- and third-tier cities have expanded services to continuously expand profit space. During the pandemic, online education and service users have further accumulated, and online business has been strengthened.

(1) Training and coaching to achieve large-scale operation, enhance marketing and build leading mentor IP

Focusing on the growth needs of small and medium-sized enterprises and innovative and entrepreneurial groups, the company steadily promoted the construction of an accelerated service platform for the industry. In 2019, the company achieved operating revenue of 213 million yuan. Excluding advertising business, the company's core business training and coaching revenue increased 34.49% year on year, gross profit reached 120 million yuan, an increase of 50.36% over the previous year, and the gross margin of the core business increased significantly. Platform-based coaching and training products represented by the main product “Dark Horse Laboratory” were operated on a large scale, driving the company's performance improvement. Guimu's net profit reached 16.3416 million yuan, an increase of 21.55% over the previous year.

During the reporting period, the company's sales and management expenses increased significantly, and it was used to develop markets to strengthen influence among target users, attract core talents in the industry, and build mentor IP assets. In 2019, the company signed nearly 100 laboratory mentors, of which 5 have already generated IP addresses of top mentors with annual revenue exceeding 5 million.

(2) Channel decline broadens profit space, and breakthroughs have been achieved in urban development services

The company relies on the “Hundred Cities Plan” to achieve coverage and penetration of SME users in second- and third-tier cities. By signing contracts with local governments, a large number of resources such as local government industrial policies, office space, and government orders are gathered to open up profit space through channel decline. Based on the company's high-quality urban resources and unique products and services, urban development services achieved revenue of 32.8 million yuan in 2019, an increase of 660.12% over the same period last year. By the end of 2019, the space carriers operated by the company reached nearly 60,000 square meters, an increase of more than tenfold over the previous year. Using City College as an entry point, the company has covered nearly 10,000 small and medium-sized enterprises after three years of service and operation. Nearly 1,500 new students were added during the reporting period, with an average annual growth rate of over 38.26%.

(3) Delays in revenue recognition affect performance, and online education and service accumulation of users

Affected by the epidemic in 20Q1, the delivery of the company's main business training and coaching offline courses was delayed, which had a great impact on the company's revenue and profit. The company achieved operating income of 17.9 million yuan, a decrease of 59.33% over the same period last year. The net profit of the mother and the net profit after the return of the mother lost 3.49 million yuan and 3.14 million yuan respectively. Although the company's performance is under pressure in the short term, service payments received but not yet paid in Q1 and contract liabilities increased respectively compared to the end of the previous year, and performance is expected to be released as the pandemic eases. During the pandemic, the company launched online services such as Dark Horse Membership, Live Charity Course, Dark Horse Business District, and Online Investment Promotion Conference. The total number of online course participants exceeded 100,000, paid users for online products exceeded 15,000, added more than 2,000 new online paying users, and further strengthened online education and online enterprise service capabilities.

III. Investment advice

As the company's core business and the number of users in the sinking market continue to increase, the company's performance is expected to continue to grow rapidly. The company's net profit for 20/21 is expected to be 27.03 million yuan/38.37 million yuan respectively, an increase of 92.10%/41.92% over the previous year. The corresponding EPS is 0.28/0.40 respectively, and the corresponding PE is 102.12x/71.96x respectively, giving a recommended rating.

IV. Risk Reminder

The risk of a shrinking customer base under the COVID-19 pandemic, the risk of increased market competition, the risk of online business development, the impact of continuous R&D investment on the company's business, the risk of personnel management and brain drain, etc.