Performance Overview. The company released its 2023 annual report and 2024 quarterly report. (1) 2023:

Revenue of 2.21 billion yuan, yoy +23.1%, net profit to mother of 150 million yuan, yoy +1035% .2%, net profit after deducting non-return of 140 million yuan, yoy +2461.1%, of which 2023Q4 achieved revenue of 420 million yuan, yoy +26.8%, net profit to mother of 36.754 million yuan, yoy +561.2%; (2) 24Q1:

Achieved revenue of 710 million yuan, +36.0% year over year, net profit to mother of 50,185 million yuan, +886.4% year on year, net profit of 45.9867 million yuan after deducting non-return to mother, +322.3% year on year.

Personalized education is growing at an accelerated pace, and vocational education is being actively deployed. By the end of 2023, the company had nearly 240 personalized learning centers covering more than 100 cities, and also had more than 30 full-time training bases across the country. In addition, the company actively lays out vocational education in line with industry trends and policy incentives. We expect the education and training business to benefit from the recovery of offline demand and the optimization of the industry competition pattern to achieve a sharp rise in volume and price. Education and training revenue in '23 was 2.15 billion yuan, 24.1% year over year, and contract debt as of 24Q1 was 1.10 billion yuan, +23.5% year over year, providing strong support for performance. 24Q1 payments (cash received from sales of goods and provision of services) were 960 million yuan, +36.0% year over year.

Profit levels have been greatly improved, and repayments have steadily promoted continuous optimization of financial expenses. The gross profit margin of the education and training business in '23 was 36.4%, a significant increase of 9.2pp, and the overall gross margin of the 23/24Q1 company improved by 8.5/2.0pp to 36.5%/32.4% year on year, mainly benefiting from improvements in production capacity efficiency of outlets and teachers. At the same time, the sales, management, R&D and finance cost ratios were 7.4%/15.7%/1.2%/2.7%, respectively, +0.9/+1.4/-0.1/-1.0pp, 24Q1 were 5.4%/15.2%/1.9%, respectively , -0.3/+0.9/+0.1/-1.5pp, year-on-year. Net interest rates due to mother in '23 and 24Q1 were 7.0%/7.1%, respectively, +6.3/+6.1pp.

Profit forecasting and investment advice. Considering the performance of 23 and 24Q1, we raised our profit forecast. We expect net profit to be 2.8/37/4.7 billion yuan for 24-26, respectively. Referring to comparable companies, we will give the company a 24-year 30x PE, a reasonable value of 68.12 yuan/share, and maintain the “buy” rating.

Risk warning. Industry policy fluctuations, enrollment falls short of expectations, and capacity expansion falls short of expectations.