The company announced 2024 interim results

24H1's revenue was 0.32 billion yuan, up 68.1%; net profit to mother was 0.05 billion yuan, up 160.7%; net profit after deducting non-return to mother was 0.05 billion yuan, up 203.7%; contract debt was 0.46 billion yuan, up 116.5%; gross profit margin was 45.0%, up 8.0 pct; net profit margin was 16.5%, up 6.0 pct.

The sharp increase in performance is mainly due to ① the slow recovery of 23H1 market demand and a low base; ② after the company completed the quality transformation, the product was well recognized by parents and students.

By business, 24H1 full-time review revenue was 0.12 billion, an increase of 19.7%; tutoring programs were 0.08 billion, an increase of 31.9%; and quality education was 0.12 billion, an increase of 320.9%.

Keep up with the direction of education policy and stick to the bottom line of compliance

The company adheres to the original intention of education, responds positively and implements the double reduction policy spirit, and adheres to the bottom line of compliance management.

In 24H1, the company underwent a total of 65 inspections at the provincial, municipal and municipal levels, and achieved a zero-penalty warning record, and received high recognition; the company actively promoted the pace of obtaining a license to operate a non-subject for-profit school in Guangzhou, and the licensed compliance management guarantee company's business was more sustainable.

In terms of product compliance, the company thoroughly implements the “double reduction” policy, optimizes the curriculum, pays attention to the scientific and appropriate nature of the course content, strictly prohibits advanced and excessive teaching, and ensures that the course conforms to the rules of students' cognitive development. In 2022, several products achieved quality transformation under the guidance of the education authorities. It was the first batch of quality products in Guangdong Province to pass non-subject certification, and all passed the review in 2024.

We believe that after this round of double cuts, the industry compliance threshold may be raised significantly. Continued investigation and punishment of illegal workshops on the supply side will help standardize enterprises to increase their concentration. At the same time, policies and regulations have always encouraged compliant operations, and the advantages of leading national and local institutions are showing, which is expected to become a benchmark for regional institutional transformation and compliance.

Focus on core competency development, with remarkable results in quality transformation

The company continues to optimize quality product services, focusing on cultivating core competencies such as literature and scientific quality, and has launched 9 quality products, including “Excellent Programming,” “Tick Tick Literature,” and “Literary Aesthetic Education.” The above products are all among the first batch of quality products in Guangdong Province to pass non-subject certification by education authorities.

Based on continuous research on the quality education system, the company proposed the “Six Force Model” for children's growth and released the “Kunpeng Youth Growth Camp Project”. It uses advanced interactive and exploratory teaching methods, which are highly recognized by society and students, helping to build a quality education brand image and providing an important guarantee for the company's transformation.

Raise profit forecasts and maintain “buy” ratings

The company's quality transformation is highly recognized, and licensed compliance management ensures sustainable development. In view of the company's strong 24H1 performance, we raised our profit forecast. The company's annual revenue for 2024-26 is 0.88 billion yuan, 1.53 billion yuan, and 1.83 billion yuan respectively (the original values were 0.69 billion yuan, 1.03 billion yuan, and 1.28 billion yuan, respectively);

Net profit after adjustment was RMB 0.18 billion, RMB 0.28 billion, RMB 0.34 billion (original values were RMB 0.15 billion, RMB 0.24 billion, RMB 0.31 billion, respectively); EPS was RMB 0.21 per share, RMB 0.33 per share, RMB 0.40 per share (original values were RMB 0.17 per share, RMB 0.29 per share and RMB 0.36, respectively) /share); PE is 12, 8, 6X, respectively.

Risk warning: policy risk, new business risk, management risk, risk of rising operating costs, risk of the company's low market value in circulation, etc.