The adjusted net profit for the first half of 2022 is 2.0% lower than we expected. Minsheng Education announced its results for the first half of 2021: the income was 1.27 billion yuan, an increase of 2.9% over the same period last year, and the income was 6.5% lower than we expected, mainly due to the poor performance of online education revenue. The adjusted net profit is 410 million yuan, down 5.1% from the same period last year. The adjusted net profit is 2.0% lower than we expected, mainly due to the increase in investment in online education.
Trend of development
Campus education has developed steadily, and online education income has declined as a result of the epidemic. 1) the income from campus education is 720 million yuan, an increase of 10.0% over the same period last year. In terms of the number of students, as of June 30, 2022, the total number of students in the company's schools was 101636, an increase of 4.8% over the same period last year. 2) the income from online education is 550 million yuan, down 5.1% from the same period last year. We believe that the main reason is that the enrollment of the company's du Xue network and other platforms was blocked under the influence of the epidemic in the first half of the year.
Investment increased in the first half of the year. In the first half of 2022, 1) the company's gross profit margin was 57.6%, and the gross profit margin decreased by 1.1 ppt% compared with the same period last year. 2) the company's sales expenses and management expenses increased by 11.0% and 10.8% respectively compared with the same period last year, and the rate of sales expenses and management expenses increased by 0.7% and 1.3 ppt respectively compared with the same period last year. 3) the adjusted net profit was 410 million yuan, down 5.1% from the same period last year. We expect the decline in the company's profits to be mainly due to increased investment in online education, coupled with the seasonality of Xiaoai Technology and YouTube business, which drag profits behind the table.
The enrollment of online education is suspended, the medium-and short-term income is under pressure, and the long-term development of the product matrix is expected. In the first half of 2022, some colleges and universities carrying out online education issued notice 1, saying that according to the Circular on ending the pilot work of Modern distance Education (online Education) by the General Office of the Ministry of Education, the enrollment of online education will be stopped in the autumn of 2022, and the enrollment, learning years and teaching forms of the students who have been enrolled in the spring of 2022 will remain unchanged. The enrollment of online education has been suspended, and we expect the company's short-and medium-term online sector revenue to be under pressure. However, the company's current business covers open education, professional ability improvement, education information services, human resources employment, examination and evaluation, international education, etc., which has formed a rich product matrix, and has many online platforms such as Aopeng Education, Xiaoai Science and Technology, MBAChina, Outstanding courses, etc., the long-term development of "enrollment-employment-training" integrated business is expected.
Profit forecast and valuation
We expect that under the suspension of online education enrollment, the company's online education business revenue may be under pressure to lower the company's 2022max 2023 revenue forecast of 11.5% and 19.8% to 2.41 billion yuan / 2.49 billion yuan, and to reduce the 2022max 2023 adjusted net profit forecast of 11.8% to 740 million yuan / 780 million yuan. Maintain the company's outperforming industry rating, but due to the downgrade of the company's performance forecast and the pressure on higher education valuations, we cut our target price by 34.5% to HK $0.72 corresponding to a price-to-earnings ratio of 4.0x in 2022, which is 22% upside from the current share price. The current share price corresponds to a price-to-earnings ratio of 3.3 / 2.9 times 2023.
Risk
Campus education for-profit and non-profit risk; online education business policy risk.