Dongfang Fashion is the leader of China's driving training industry. In 2020-22, the company's performance fluctuated under the disturbance of the local epidemic. With the relaxation of national epidemic control, we are optimistic that the company's traditional driving training industry will usher in a recovery. At the same time, the company has actively distributed the field of intelligent driving training and aviation training in the past 3 years. 1) with the intelligent promotion of the driving training industry driven by policies, the penetration rate of the intelligent driving training industry is expected to accelerate. As an industry leader, the company has the advantage of first-mover-supply chain-data, and is expected to fully benefit; 2) the aviation training industry is growing steadily, and the company has become one of the leading companies in the industry, but its market share is still low. with the further improvement of hardware in the future, it is expected to continue to increase its share. Taken together, we are optimistic about the recovery of the company's short-term performance and the long-term growth of smart driver training & aviation training, covering the "buy" rating for the first time.
Oriental Fashion is the leader of the national driving training industry. The company is the only listed company in A-share driving training industry, mainly engaged in motor vehicle driver training and aviation training services, mainly in Beijing area (the company's market share in Beijing area is as high as 35% in 2019). At the same time, it also covers Yunnan, Hubei, Hebei, Shandong and other regions. In 2021, the company realized income of 1.2 billion yuan and net profit of 152 million yuan.
Driving training industry: the demand is stable and the space is broad, and the pattern optimization leader is dominant. The number of newly licensed drivers in China reached 27.5 million in 2021, and the number has maintained more than 27 million in the past years (except 2020). From the perspective of penetration, the penetration rate of Chinese drivers is only 34%, which is still more room than that of developed countries (more than 50%).
The pattern of the industry is scattered. By the end of 2020, there are more than 20,000 motor vehicle driving training institutions in the country. Under the disturbance of the local epidemic situation in 2020-22, some small and medium-sized institutions have been gradually eliminated, and in the future, with the industry moving towards intelligence and standardization, high-quality leaders with sound layout and sufficient investment in related fields are expected to further benefit.
Investment highlights: short-term focus on the recovery of the main industry of driving training, VR& navigation opens the space for medium-and long-term growth.
The traditional driving training business is expected to gradually recover, and the profitability of remote projects is expected to improve: the demand for traditional driving training business is stable, and 3Q20-3Q21 recovers steadily under the stabilization of epidemic control (1-3Q21 net profit 169 million / + 103.3%). However, since 4Q21, the performance of some cases has fluctuated repeatedly. We believe that with the relaxation of epidemic control, the company's traditional driving training business is expected to recover quickly. At the same time, the remote projects that have been a drag on profits in the past have gradually matured in recent years, and the net profit of the Kunming / Jingzhou project in 2021 reached 708000,000 yuan.
Business losses in Shijiazhuang and Shandong have also narrowed, and profitability is expected to further improve in the future.
VR intelligent driving training to create a unique advantage, light asset mode & broad development space under the trend of industry intelligence:
Since 2018, the company has joined hands with thousands of Mirage to carry out VR intelligent driving simulator training business. By the end of 2021, more than 1000 VR simulators have been installed all over the country. Compared with the traditional mode, VR intelligent driving training can greatly reduce costs, and the network setting is more flexible, and the expansion mode is lighter. With the further deepening of the trend of intelligence in the driving industry, the penetration rate of intelligent driving training is expected to accelerate. The company is expected to be at the top with its first-mover layout, its own supply chain and rich data accumulation.
Actively layout aviation training and grasp the growth trend of the industry. The company has actively grasped the growth trend of the aviation training industry, created "three schools and four games" and other hardware supporting, and has become one of the leading enterprises in the industry for several years.
In 2021, the subsidiary Dongfang Fashion International Aviation Development Company achieved an income of 125 million yuan and a net profit of 14.3 million yuan. Looking to the future, on-hand orders support short-term growth (according to the company announcement, as of 1H22 orders reached 313 million yuan), continuous improvement and rich hardware supporting to improve the company's training carrying capacity and training efficiency. At present, the company's market share is only about 5%, and there is a broad space for growth.
Risk factors: the number of enrollment of the company is less than expected; the operation of new projects is not as expected; the risk of industry policy change; the risk of intensified competition in the industry; the risk of recurrent epidemic infection, affecting training and enrollment and other risks.
Investment advice: in the short term, with the relaxation of epidemic control, the company's main business is expected to be repaired; in the medium to long term, the company's active layout in new areas such as intelligent driving training and aviation training is expected to open up room for long-term growth. We expect the company's net profit in 2022-24 to be-0.37 billion yuan, referring to the comparable company's average value of 23 times in 2023 (Chuanzhi Education, China Oriental Education, Action Education, except for action education is based on the consensus expectation of wind, the rest are based on the forecast of CITIC's research department). Considering the company's short-term performance repair flexibility and broad medium-and long-term space, we give the company 28 times PE in 2023. Corresponding to the target price of 10 yuan, the first coverage was given a "buy" rating.