Main points of investment
Our point of view: the company's revenue in the first half of 2021 recorded 2 billion yuan, an increase of 31.9% over the same period last year. In the first half of the year, under the pressure of the epidemic and enrollment, the company stepped up its advertising efforts, and its profit performance was lower than expected. However, under the pressure of profit margins, we also saw the improvement of the profit model of the company's new business Omickey and delicious College, and the adjustment of the structure of Wantong auto repair courses accelerated the growth of students. In the second half of the year, the company will continue to build offline enrollment channels and build self-built teams. We adjust our profit forecast and expect the company's operating income to reach 44.3,54.0 and 6.51 billion yuan (the same below) from 2021 to 2023, an increase of 21.4%, 21.9% and 20.5% respectively over the same period last year, and the core net profit will be 7.2,9.0 and 1.13 billion yuan respectively, up 44.7%, 24.9% and 25.0% year-on-year. Maintain a "buy" rating and lower the target price to HK $11.60 under profit margin pressure, corresponding to a PE of 33, 25 and 20 times for 2021-2023, respectively.
The number of students has increased rapidly, and the profit margin has declined slightly in half a year: as of June 30, 2021, the company has 218 schools, with 12 new schools added in half a year, and is expected to expand at a rate of about 20 per year in the future. Affected by the epidemic, the operating income in the first half of 2021 was 2.001 billion yuan, up 31.9 percent from the same period last year, the number of new students was 81900, up 34.7 percent from the same period last year, and the average number of trainees was 143300, up 12.0 percent from the same period last year. The slight decrease in gross profit margin in the first half of 2021 was mainly due to a significant increase in staff salaries and benefits and teaching-related consumables and other costs.
Increase advertising efforts to affect profit margins, skills training certification and academic qualifications business is carried out steadily:
The sales expense rate of 2021H1 company reached 23.2%, which is higher than that of 2019 H1 by 5.7pct. The company complies with the national policy to upgrade the level of running a school, and the first technician college will be established in the next 2 years. As of July 7, 2021, a total of 6 schools in the group have reached senior vocational schools, with a cumulative license of 43 and a target of 50 in 2021. The company achieved a breakthrough in the construction of the regional center, and Shandong Teaching Industrial Park and Sichuan Teaching Industrial Park landed smoothly.
The new edition is growing rapidly and the curriculum structure is diversified: Wantong Automobile realizes the two-wheel drive effect, and the 12 new schools opened in 2017-18 have now entered the stage of contributing enrollment capacity after a 2-3-year climbing period; the new institutions of Omickey and delicious College are growing rapidly, and their gross profit margins are higher than those in 2019 by 3.5pct and 47.6pct respectively. The company plans to continue to expand its business to respond to industry trends and market demand, and to continue to develop other markets for services such as artificial intelligence and healthcare, as well as vocational skills education in the new economy.
Risk tips: 1), the process of school acquisition and integration is not as expected; 2), the number of qualified teachers hired and retained is not as expected; 3) the number of students enrolled is less than expected; 4), changes in China's education policy.