Event: The adjusted net profit in 2020 is expected to be no less than 80 million yuan. The company issued a profit forecast. It expects revenue to increase by about 5% (to about 747 million yuan) in 2020. The net profit of the mother is expected to be 48-55 million yuan, and the adjusted net profit is not less than 80 million yuan.
The provision of promotions during the pandemic combined with new learning centers is in a climbing period, and gross profit in 2020 is under pressure. The year-on-year decline in the company's profit side in 2020 was mainly due to: 1) providing discounts and concessions to students in response to the pandemic in 2020, which resulted in an average class hour fee drop of 10%; 2) 46 and 52 new learning centers opened in 2019 and 2020 were still climbing. Contribution revenue was limited and cost items were relatively rigid, leading to a decline in gross profit. On the other hand, thanks to promotions and network expansion, the number of tutoring hours offered by the company increased by about 28% in the second half of 2020 (to about 6.3 million lessons).
Operation of winter vacation classes in 2021: The number of enrollees has increased dramatically, and the learning center has further expanded. The company added 25 new learning centers in the second half of 2020 and put them into operation during winter vacation enrollment in 2021. According to the company's public conference call, as of January 15, 2021, the number of students enrolled in the company's winter semester increased by about 40% year on year; in terms of receipts, Shenzhen increased by about 15%, and Foshan, Dongguan/Huizhou increased by more than 100%/50%/40%, and the cities surrounding Shenzhen grew brilliantly. Furthermore, the company added 7 new study centers in Guangzhou before the winter vacation, pre-registered more than 30,000 courses, and expanded into Zhuhai, Maoming, Suzhou and Ningbo during the winter vacation. While further deepening the layout within Guangdong Province, the company officially started operations outside the province.
Strengthen refined operations and optimize teaching quality and brand reputation. The company's newly built learning center in 2019-2020 is still in a climbing period. It is expected that 2021 will balance the pace of opening new learning centers, strengthen refined operations, and optimize the company's teacher allocation. In terms of teacher recruitment and training, the company focuses on optimizing the quality of teaching and continuously strengthening cooperation with universities to recruit high-quality talents. The second headquarters in Shenzhen has recently been established and positioned as a research and development base and teacher training base. In terms of course development, the company is expected to continue to strengthen hierarchical teaching, apply the high-end Hongmeng curriculum system to new branches, and focus on building a high-quality brand reputation.”
Investment advice. As a regional leader in K12 extracurricular training in South China, the company is deeply involved in the Guangdong market and entering the Yangtze River Delta market on this basis, strengthening refined operations and growth can be expected. According to the profit forecast, we adjusted the company's adjusted net profit forecast for 2020-2022 to 0.80/1.38/198 million yuan (the original forecast was net profit of 1.66/233/316 million yuan), an increase of -41.3%/73.0%/43.4%, corresponding to EPS 0.14/0.25/0.36 yuan. The current price corresponds to PE 82X/47X/33X, maintaining the “increase in holdings” rating.
Risk warning: risk of recurrence of the epidemic; profitability falls short of expectations during the expansion process; new teaching models expand risks; regulatory policies are tightened; industry competition intensifies.