Maintain the "buy", raise the target price to HK $10, weaken the short-term disturbance of the policy epidemic, and improve the performance-to-price ratio of the valuation: 2021 is a slow year with two fast and one slow pace of company expansion, and it is also a year in which the new school gradually matures and contributes profits within two years, accounting for more than 60%. In the case of the gradual reduction of the short-term disturbance of the policy and epidemic situation, the closing price on April 14 corresponds to the company's valuation of 211pm in 22 years. We believe that the valuation performance-to-price ratio has begun to highlight. We adjust our profit forecast and expect the company's operating income from 2021 to 2023 to be 12.17,16.16 and 2.055 billion yuan respectively, an increase of 62.5%, 32.8% and 27.1% respectively over the same period last year, and the adjusted net profit is 1.83,2.50 and 346 million yuan respectively, up 89.2%, 36.5% and 38.5% respectively over the same period last year. Maintain the "buy" rating and raise the target price to HK $10, corresponding to 25 times, 18 times and 13 times PE for 2021-2023.
The performance in 2020 was affected by the epidemic and discount rate: by 2020, the company had enrolled more than 330000 students, an increase of 13% over the same period last year; the total class hours exceeded 1000 million class hours, and the total class hours in the second half of 2020 increased by 29% over the same period; the total number of learning centers reached 152, an increase of 50% over the same period last year; six new cities were expanded in the whole year, with a total of 13 cities; and the company's annual revenue in 2020 was 749 million yuan, an increase of 5.3% over the same period last year. The adjusted net profit was 96.8 million yuan, down 28.9% from the same period last year, and the net interest rate was 13%.
The decline in performance is mainly due to the retention loss caused by the offline transfer from February to June 2020, and the company's one-time 50 yuan per student in summer and autumn corresponding to a 10% reduction in class fees.
In 2021, the discount rate returned to normal, and the profit margin rebounded: in 2021, the company withdrew the discount gift right of the city principal and implemented strict pricing. The discount rate in Shenzhen is 93.38%, and the overall discount rate in the periphery of Shenzhen in spring is 87.83%, which is much higher than that of last year. In the case of reduced discounts, the continuation rate of winter vacation in 2021 is 800.85%, which is still higher than the retention rate of 71.5% for the whole year of 2020. In the first quarter of 2021, the company has achieved an adjusted net profit of 60 million yuan, and its profit margin has gradually recovered. It is expected that the net interest rate for the whole year of 2021 will rise to about 15% by 2pct.
Focusing on Guangzhou, the branch school outside the province has grown steadily: by 2020, the company has more than 150 learning centers. The company plans to add 30 new campuses in 2021, and will focus on Guangzhou in 2021, and steadily expand to Zhejiang and Jiangsu. In 2021, the company went out of the Dawan area and opened two campuses in Ningbo, Zhejiang and one in Suzhou, Jiangsu. The middle and high-end price positioning and the introduction of Hongmeng system laid a good foundation for the company's initial reputation.
Risk tips: 1) industry policy changes; 2) fierce competition in the industry; 3) the number of enrollment is less than expected; 4) the continuation rate is lower than expected; 5) remote expansion is not as expected.