The Zhitong Finance App learned that Zhishang Securities released a research report saying that recently, New Oriental (09901) /Good Future (TAL.US) /Xueda Education (000526.SZ) /Code Education (300192.SZ) /Action Education (605098.SH) released the latest financial reports, leading education companies generally showed high growth. This is due to the increasing demand and resilience of the education industry combined with significant improvements in the competitive pattern, and the expansion of new businesses such as non-subject training/smart hardware/vocational education. Currently, the education industry is still in the early stages of a new round of development. Leading companies have revived their lives, and the growth potential is strong.

The main views of Zheshang Securities are as follows:

Education Industry's Latest Quarterly Report: Resilient Demand, Improved Prosperity

1) New Oriental: FY2024Q2's revenue was US$870 million, up 36% year on year. Revenue exceeded expectations, and the growth rate exceeded expectations by 10% to 13%; new businesses such as overseas examination training and consulting services, non-subject training, and Oriental selection boosted growth. FY2024q2non-GAAP net profit and profit margins were US$50 million and 5.8%, respectively (up 3.0% year over year); the increase in profit margins benefited from increased operating leverage and increased profit margins in the new education business driven by the recovery of the education business.

2) Good future: FY2024Q3 revenue was US$373.5 million, up 60.5% year on year; Bloomberg agreed to expect US$330 million, exceeding expectations by 13%. Good future revenue growth comes from good demand for offline literacy training businesses and the popularity of learning machine products. FY2024Q3non-GAAP net profit and profit margins were $1.945 million and -0.5%, respectively.

3) University Education: The net profit for 2023 is estimated to be 130 million yuan to 165 million yuan, an increase of 1093.88% to 1415.3% over the previous year. On a quarterly basis, HKU Education achieved profits in all four quarters of 2023. Benefiting from clear supply and resilient demand, profitability has improved dramatically. University education is expected to meet existing needs and has the potential and space for expansion.

4) Code Education: It is estimated to achieve net profit of 120-150 million yuan in 2023, an increase of 62%-102% over the previous year; net profit after deducting non-return to mother is 1.23-153 million yuan. The year-on-year increase was 57%-95%. The main driving factors were the improvement in the quality of teaching services and operational efficiency, and the increase in profits contributed by vocational education.

5) Action education: It is expected to achieve revenue of 65-690 million yuan in 2023, an increase of 44%-53%; net profit to mother of 21%-240 million yuan, an increase of 89%-116%; net profit after deducting non-return to mother of 2-220 million yuan, an increase of 101% to 121% year on year. Action education has maintained rapid and steady growth. The driving factors are mainly due to the remarkable strategic results of major customers, and the continuous improvement of brand power and customer satisfaction.

Investment advice

1) Short-term: There is a mismatch between supply and demand in the industry, and leading enterprises are “the leftovers king”. After the “double reduction”, the industry became clear. Currently, the policy context is gradually becoming clear, with the aim of standardizing the management of the industry. Under the mismatch between supply and demand, education enterprises represented by New Oriental, Good Future, and University Education ushered in recovery and growth.

2) Medium- to long-term: The education industry is still going strong, stemming from residents' demand for “investment” in the future due to rising income levels and intense social competition. The decisive players in industry competition are brand advantage (“slow business” that focuses on word-of-mouth), standardized services, and expansion capabilities (essential conditions for achieving sustainable growth). Companies represented by New Oriental, Good Future, and University Education have fully proven their capabilities in the industry's last round of development cycle. Referring to the number of outlets before the “double reduction”, leading education companies still have room to expand their stores.

3) In summary, the bank believes that the education industry is at the beginning of a new cycle of development. It continues to recommend New Oriental, and suggests focusing on the future, university education, code education, and action education.

Risk warning

New business development falls short of expectations; industry competition intensifies, etc.