Key Investment Considerations:

Initiating QuantaSing Group with a Speculative Buy rating and 12-month price target of $9.00 per share. QuantaSing Group's mission, to provide adult online offerings in mainland China to improve people's quality of life and well-being by providing them lifelong personal learning and development opportunities, provides them with significant growth potential for its online adult learning brand portals - QiNiu, JiangZhen, and QianChi. Frost & Sullivan anticipates the Chinese online segment of the adult learning market to grow annually by 17.8% from 2022 through 2027, reaching RMB325 billion (or an estimated $46 billion in 2027).

Supporting our growth forecast should be QSG's ability to successfully monetize its registered user base of over 94 million and over 400,000 paying learners on its technology portal brands. At June 30, 2023, registered users and paying learners grew 60.6% and 29.9% respectively, compared to June 30 2022.

To monetize its users, the company launched a live e-commerce segment that will initially sell Chinese liquor. In August 2023, this new segment generated RMB13.3 million in gross merchandise value (or approximately $545,000). In a move to expand outside of China, the company acquired Hong Kong based Kelly's Education.

For FY24, we project EPS of $0.01 on 19.9% revenue growth to $509.6 million reflecting strong 2H24 growth from expansion of paid learners, sales from the company's live e-commerce liquor offering, and inclusion of the operations of Kelly's Education (acquired in September 2023).

For FY25, we project EPS of $0.04 on 20.2% revenue growth to $612.6 million reflecting increases in the number of paid learners, monetization of its registered users through expansion of its live e-commerce technology platform, and a full year contribution and expansion of the services provided by Kelly's Education. Our EPS forecast reflects gross margin remaining above 85% and operating expense margin improving to 84.4% from an estimated 86.4% in FY24 as QSG utilizes its technology to create operating efficiencies.