(Report produced by Author: Open Source**, Chu Min, Li Ruixian).
1.1. Company profile: The education business is the core, and the scale of multi-format and multi-campus has been steadily improved
Acquired Xi'an Longmen Transformation Education Track, and expanded in different places by virtue of the advantages of further education resources. Kede Education, formerly known as Coswood, is an environmentally friendly offset printing ink leader, affected by the impact of the Internet on the traditional printing industry, the company acquired Shaanxi High School Entrance Examination in 2017, Longmen Education 4976% of the shares, and acquired its entire remaining stake in 2020. In the same year, the company obtained the right to hold Xi'an Peiying Yucai, laid out the track of secondary vocational colleges for further education, and changed the company name to "Kede Education". In view of the success of Xi'an Yucai, in 2021, the company acquired Tianjin Luwai and Henan Maotan High School to further use its college entrance examination resources to expand secondary education. Under the double reduction, the K12 business is divested, but the teaching and research advantages are still there, and the shareholding of Zhonghao Xinying is deployed in AI+ vocational education. Since 2016, the company has carried out K12 extracurricular training in many cities across the country, and after the release of the "double reduction" policy in 2021, it has successively closed K12 extracurricular training campuses in Zhengzhou, Chengdu, Suzhou, Taiyuan, Chongqing, Nanchang, Tianjin, Beijing and other cities, and completely withdrew from related businesses by the end of 2022. In line with the policy guidance, the company established two vocational and technical training companies, Zhilian Jiawei and Xinchuang Qifu, in 2022 to serve the high-tech and flexible employment market. In April 2023, the company increased its capital in AI chip developer Zhonghao Xinying, and the shareholding ratio reached 838% and then diluted to 814%。The two parties will carry out in-depth cooperation in AI-based vocational education to help cultivate AI-related vocational education talents.
The main business is divided into two major sectors: education and ink, and the education business continues to expand in multiple campuses and formats. After the divestment of K12 extracurricular training, the company's education business can be divided into four major sectors: full-time schools, secondary vocational colleges, ordinary high schools, and vocational skills training. (1) Full-time school: mainly one-year college entrance examination repeat classes, plus a small number of high school entrance examination repeat classes, there are three campuses in Xi'an, Shaanxi, as of the fall of 2023, the company has a total of about 3,000 full-time students. (2) Secondary vocational colleges: For a three-year system, the company's secondary vocational colleges are different from the traditional employment-oriented secondary vocational colleges, and reuse the teaching and research and teacher resources of the college entrance examination and K12, and change to the main orientation of further education, which are distributed in Xi'an and Tianjin. As of the fall of 2023, Xi'an Yucai has about 5,000 students in 1 campus, Tianjin has about 2,600 students in 2 campuses in Hexi and Hebei, and in 2024, the company plans to expand 1 new secondary vocational campus in Xi'an Yucai and Tianjin Abroad. (3) Ordinary high school: Henan Maotan High School, officially put into operation in September 2022, the ordinary high school is limited by the enrollment quota of the local education bureau, as of the fall of 2023, about 400 students will be recruited, and the design capacity will be about 1,500. (4) Vocational skills training: It is another key development direction after the company's double reduction, and two vocational and technical training companies have been set up, namely Zhilian Jiawei and Xinchuang Qifu, and jointly developed artificial intelligence-related courses with Zhonghao Xinying.
1.2. Business segments: The mid-vocational and full-time business recovered rapidly, contributing to the main profit increment
The mid-career and full-time business recovered rapidly, making up for the impact of the K12 business divestiture. As of 2023H1, the company's secondary vocational and full-time school business, K12 extracurricular training, and ink chemical business revenue accounted for 46%, 0%, and 53% respectively. The secondary vocational and full-time business showed a good recovery momentum after the optimization of epidemic prevention policies, and the steady growth of enrollment drove the revenue of this segment to increase by 31% year-on-year in 2023H13% to fill the revenue gap caused by the closure of K12 extracurricular training. As a traditional segment, the growth rate of the ink chemical business is relatively stable, and the revenue in 2023H1 will increase by 1 year-on-year3%。
The education sector is the main source of the company's profits. The gross profit margin of the education-related business is much higher than that of the ink business, and the overall gross profit margin of the company in 2023H1 is 3134%, of which the gross profit margin of secondary vocational and full-time school business was 4655%, and the gross margin of the ink business was 1677%。Shaanxi Longmen Education Science and Technology*** and Tianjin Foreign Vocational High School*** in the education sector contributed the vast majority of the profits of the listed companies, and the sum of the net profits of the two subsidiaries in 2023H1 was 51.12 million yuan, accounting for 91% of the net profits of the listed companies.
1.3. Financial analysis: the adverse impact of the previous period has been digested, and the revenue and profit continue to improve
The year-on-year growth rate of the revenue side turned positive, and the profit margin was greatly optimized. The "double reduction" policy was implemented in September 2021, and since then, the company's revenue has been affected by the contraction of K12 extracurricular training business, and the growth rate has continued to be negative. At the end of 2022, the K12 business was divested (the proportion of K12 business revenue in 2022 was 15%), and the revenue in Q1 and Q2 of 2023 decreased by 9% year-on-year, respectively21% and 782%。In 2023Q3, with the improvement of the pace of autumn recruitment, the company's revenue turned positive year-on-year after 8 quarters of negative growth, an increase of 24%。On the expense side, as of 2023Q3, the company has no bank borrowings and has fewer financial expenses. While the K12 business has a greater apparent impact on the revenue side, it has less impact on the bottom line due to its higher marketing expenses. Benefiting from the K12 divestiture, the company's sales expense ratio and management expense ratio have been significantly reduced, and the overall net profit margin attributable to the parent company in 2023Q3 has increased significantly to 205%, +723pct。
The contractual liabilities confirmed the increase in enrollment and the company's cash flow was sufficient to facilitate expansion. As of 2023Q3, the amount of the company's contractual liabilities is 1200 million yuan, 49.07 million yuan of new contract liabilities in the first quarter of spring recruitment, and 72.01 million yuan of new autumn recruitment in the third quarter, the overall enrollment continued to improve. As of 2023Q3, the company's cash and cash equivalents were 44.1 billion yuan, interest-bearing liabilities are 0, and the cash on the books is sufficient, which is conducive to the expansion of the new campus in the future, or other related acquisitions, investments and other capital operations.
2.1. Industry scale: The population of secondary education age has continued to increase in the past ten years, and the public secondary vocational population has shrunk
The population base determines that the population of secondary education age will continue to grow. Assuming that 12-year-olds enter lower secondary school, the number of births in 2006 and 2016 determines that the number of people of secondary school age will continue to grow over the next decade. In 2015, the country liberalized the two-child policy, and the number of births in 2016 increased significantly to 17.68 million, and it is estimated that China's secondary-school-age population will be 51.64 million in 2033.
With the improvement of national quality and the change of the country's demand for high-quality talents, the number of secondary vocational colleges has shrunk and the enrollment rate of high schools has increased. After students complete the compulsory education stage of study, they can choose two paths of ordinary high school and secondary vocational college, of which ordinary high school needs to take the high school entrance examination, and secondary vocational college adopts the system of registration and admission, and secondary vocational college is mainly divided into three types: vocational high school, technical college, and technical secondary school, mainly the difference in learning content and the nature of running a school. Although the state has vigorously encouraged the development of vocational schools in recent years, the "high school entrance examination diversion" has been repeatedly strengthened by the society, and many secondary vocational colleges were established earlier, and the investment in hardware investment and school-enterprise integration is poor, and "what you learn is useless, and it is out of touch with social needs" is the biggest problem faced by secondary vocational students. Seniors and their parents are more likely to choose regular high schools, with the general high school enrollment rate increasing from 40% in 2004 to 58% in 2022.
The number of public secondary vocational schools has shrunk significantly, but the proportion of private secondary vocational schools has increased significantly. Public secondary vocational education mainly relies on subsidies, tuition income is less, in the hardware investment of skills training, as well as the flexibility of school-enterprise integration, there is a certain gap compared with private schools, it is difficult to adapt to the needs of rapid change of modern vocational technology. In addition, some secondary vocational colleges take the initiative to choose resource integration to create high-quality secondary vocational schools that meet social needs. The number of secondary vocational colleges has decreased significantly, from 14,700 in 2003 to 7,201 in 2022, a decrease of 51%. Due to the advantages of school-enterprise cooperation and high profitability, the proportion of private secondary vocational colleges continues to increase. In 2021, the Law on the Promotion of Democracy was promulgated to encourage enterprises to establish or participate in the establishment of private schools that implement vocational education in the form of sole proprietorship, joint ventures, and cooperation. In 2022, there will be 2,073 private secondary vocational schools in the country, accounting for 94% to 288%。
2.2. Demand side: The employment pressure is increasing, and about 65% of secondary vocational graduates choose to go on to higher education
The overall employment pressure of young people has increased, and low education has become a disadvantage in job hunting. The youth unemployment rate (for people aged 16-24) rose from around 10% in 2019 to 21 in June 20233%, China's labor-intensive manufacturing industry, in the process of digital and intelligent transformation and upgrading, continues to face the employment impact of "machine substitution", which puts forward a higher demand for the structure and quality of skilled talents, and the difficulty of secondary vocational graduates to find employment increases. At the same time, the number of undergraduate students nationwide has continued to increase, from 3.57 million in 2011 to 4.45 million in 2021, and more highly educated and high-quality students are pouring into the job market.
Different from the traditional perception, further education has become the main destination of secondary vocational graduates. According to the 2020 National Sample Survey of Secondary Vocational Graduates conducted by the China Institute of Education and Financial Sciences of Peking University, nearly 1Only 35% of the 70,000 samples were employed, with about 65% continuing their studies at tertiary institutions and about 10% of them at undergraduate levels. In terms of further education channels, counterpart single recruitment and various forms of direct promotion are the main ways to further education. Nearly 9% of students also choose the general college entrance examination, hoping to go on to further their studies at the undergraduate level. Among them, the proportion of developed regions choosing to go on to higher education is higher, and the overall rate of secondary vocational graduates in the eastern, central, and western regions is 671%/66.3%/56.5%, of which 73%/6.3%/4.0%。The admission rate and the number of undergraduate admissions have become important factors for secondary vocational schools to attract students.
Most of the East Asian economies have seen a significant increase in the rate of secondary vocational education after the economy is developed. Taiwan and South Korea belong to the same Confucian culture as us, and the importance of academic qualifications and education systems are similar to ours, which has reference significance. (1) Taiwan, China: After the implementation of the education reform in the 90s of the last century, the rate of secondary vocational education in Taiwan, China, increased significantly from less than 5% in 1988 to 83 in 20125%, although it has since decreased slightly, but in 2018 there was still a 79% rate of secondary vocational advancement. The shift to further education is to meet the needs of families for academic qualifications, and also to meet the needs of economic and industrial development for highly educated and high-quality talents. (2) South Korea: With the continuous development of South Korea's society and economy, the country's industrial upgrading and economic growth mode have changed, and the proportion of secondary vocational graduates who choose to give up employment and continue their studies has increased significantly, and the rate of secondary vocational education in South Korea in 1990 was only 83%, which has risen to 71 in 20101%。The employment rate increased from 76 in 19906% fell to 19 in 20102%。
2.3. Policy side: pay equal attention to employment and further education, and secondary vocational colleges welcome the new opportunity of "vocational education college entrance examination".
The policy has shifted from "vocational and general education" to "vocational and general education" to promote the diversified development of "equal emphasis on employment and further education". In 2019, the National Vocational Education Reform Implementation Plan proposed for the first time the vocational education college entrance examination system, clearly proposing to carry out a pilot program of undergraduate vocational education, and secondary vocational graduates enjoy the same rights as ordinary high school students. In 2021, the "Opinions on Promoting the High-quality Development of Modern Vocational Education" was issued, proposing that by 2025, the enrollment scale of vocational undergraduate education should not be less than 10% of the enrollment scale of higher vocational education, and the attractiveness and training quality of vocational education should be significantly improved. At the same time, the Ministry of Education encourages the diversified development of secondary vocational schools, which should be transformed from simply "employment-oriented" to "equal emphasis on employment and further education", which is in line with the practical needs of industrial development for the high level of talents.
In 2022, Shandong Province will take the lead in the first trial, and reform and upgrade to the vocational education college entrance examination on the basis of the "spring college entrance examination". In 2022, the number of students enrolled in the undergraduate level of the Shandong Vocational Education College Entrance Examination has reached 180,000 people, the vocational education college entrance examination will become the mainstream channel for secondary vocational students to go on to higher education at the undergraduate level in the future. The implementation effect is good, the province's undergraduate admission ratio through the vocational education college entrance examination has changed from 6:1 to 4:1, and the proportion of secondary vocational students going on to further studies has exceeded 70%.
3.1. Teaching resources: self-developed teaching aids enhance adaptation, and class type upgrades promote the unit price to rise
For more than 20 years, we have been focusing on the track of high school entrance examination. In 2002, Ma Liangming, the founder of Longmen Education and a senior teacher of middle school English, founded Xi'an Longmen Tutorial School after 16 years of teaching and research. In 2016, it began to expand K12 extracurricular training campuses in many cities across the country, acquired Xi'an Peiying Yucai Vocational High School in 2020 to expand the secondary vocational track, and acquired Tianjin Travel in 2021. Self-developed a full set of teaching aids, matching the needs of secondary vocational and college entrance examination tutoring, targeted and aptitude teaching. The company has established a high-quality, efficient management team and an experienced R&D team, and the core members have many years of experience in the education industry. In view of the actual situation of students' unsatisfactory results in the high school entrance examination, we have developed a full set of school-based textbooks for junior high school articulation, focusing on basic knowledge points, which is more difficult than ordinary high school standard textbooks and has higher adaptability.
The superimposed class type upgrade has been added to the further education class to promote the unit price upward. The school is divided into ordinary classes, high-quality classes, experimental classes, and experimental classes, and advocates small-class teaching and "learner-centered" teaching according to aptitude. Taking Tianjin as an example, the tuition fee for the general class is 1-30,000 yuan, while the tuition fee for the high-quality class is 2-30,000 yuan, the tuition fee for the experimental class is 3-40,000 yuan, and the tuition fee for the experimental small class is relatively higher. At the same time, more new students participate in the preparatory class, and with the high admission rate of the school itself and the needs of students, the preparatory class is more expensive than the vocational class. With the increase in the proportion of newly recruited students in the promotion class, as well as the increase in the proportion of the structure of the boutique class and the experimental class, it is expected to achieve an increase in the overall unit price.
3.2. Management mode: emphasizing the management system rather than a single famous teacher, with replicability
The formation of students' good behavior habits is the focus of the company's education. After years of research and practice, it has been discovered that the law of "three points depend on the teacher's teaching, and seven points depend on the teacher's management and students' learning" in remedial teaching, and that "poor students" are more lacking in the cultivation of learning habits and attitudes, so a strict teaching management system is more important. The company has created a "5+" education model of "tutor + lecturer + professional class teacher + hierarchical rolling teaching + fully enclosed quasi-military management", and on the basis of regular schooling, it adopts diversified school-running forms and fine management to promote it, and combines centralized teaching with personalized tutoring in the school to cultivate and improve the all-round development quality of students. As of 2022, 27 provinces have adopted the national unified proposition test paper, which is conducive to the expansion of the company's school.
3.3. Successful experience: The undergraduate acceptance rate is 60%, and the acquisition of schools is climbing rapidly
The company's vocational promotion rate is much higher than that of other vocational high schools, which is an important factor to attract parents and high-quality students. In 2023, about 80-90% of secondary vocational students from Xi'an Yucai and Tianjin Foreign Vocational Colleges will take the general college entrance examination, the remaining 10-20% will take the technical college entrance examination, and about 60% of the students who will take the general college entrance examination will reach the undergraduate admission score line. According to the 2020 National Sample Survey of Secondary Vocational Graduates conducted by the China Institute of Education and Finance Science of Peking University, only about 10% of secondary vocational students who choose to go on to higher education go on to undergraduate colleges. The 2022 National College Entrance Examination general acceptance rate is 3986%, the company's two secondary vocational schools have a better admission rate than most ordinary high schools.
In terms of full-time schools, Xi'an Longmen Tutorial School has achieved another good result in 2023. According to the good news of Longmen Education, in 2023, the undergraduate online rate of key classes in Xi'an Longmen Tutorial School will be 100%, and the undergraduate online rate of parallel classes will be 868%, the sprint classes for art students' cultural courses were all online, and the average net increase of college entrance examination candidates in the whole school was 80-120 points, and the highest net increase was 201 points.
3.3.1. Xi'an Peiying and Cultivating Talents: Enrollment has doubled, and further studies have matched new needs for new nuclear majors
At the same time, new new majors have been established in the transformation and promotion of secondary vocational schools, and the enrollment has increased significantly. Xi'an Peiying Yucai Vocational High School is a private for-profit vocational high school 100% owned by the company, which is a full-time secondary vocational school with a three-year education system. After the acquisition, the company established new majors in computer application, animation and game production, which matched the needs of new talents under the transformation of modern industries, and also enhanced the attractiveness of students' registration, with the proportion of new majors accounting for 41% in 2021. In 2020 and 2021, Xi'an Yucai was affected by the epidemic and management changes, and the enrollment was weak, but in 2022, the major adjustment was completed, and the autumn enrollment was 1008, an increase of 58 year-on-year7%, a sharp recovery. In 2023, Xi'an Yucai will recruit more than 2,000 new people in the autumn, doubling the growth.
3.3.2. Tianjin Travel: Make good use of Douyin to greatly increase enrollment, and the net profit margin will exceed 30% after the ramp-up period
With Douyin as a channel and further education as the fulcrum, the number of overseas students enrolled in Tianjin will increase significantly in 2023. Similar to Xi'an Yucai, Tianjin Travel is a private for-profit vocational high school with a 100% holding company with a three-year education system and 2 campuses, mainly setting up majors such as tourism foreign language majors (municipal key majors), business English majors (municipal key majors), aviation service majors, tourism service and management majors, and high-star hotel operation and management. In 2021 and 2022, there were 316,384 graduates in Tianjin, and it can be assumed that the number of students in Tianjin before the acquisition (acquired in June 2021) was around 1,000. In the fall of 2023, the company will set up 6 Douyin teams to serve Tianjin foreign travelers, recruiting about 1,300 new students and about 2,600 students, and the company's empowerment has achieved remarkable results.
Tianjin's foreign income has climbed rapidly, and the net profit margin has exceeded 30% under the scale effect. With the end of the enrollment climb and the end of the epidemic, Tianjin Travelers achieved a revenue of 18.92 million yuan in 2023H1, a year-on-year increase of 592%, up 172 from 2021H1 (pre-acquisition).6%；The net profit was 5.78 million yuan, a year-on-year increase of 782%, a year-on-year increase of 3079%, profit growth is faster than revenue growth. In 2023H1, Tianjin's net profit margin for foreign travel completed the climb, reaching 306%, and the net profit margin of Shaanxi Longmen Education Technology *** is 305%。
4.1. Vocational education platform: Newly established Zhilian Jialei and Xinchuang Qifu, focusing on the integration of industry and education
In 2022, the company will set up two major vocational education platforms, Zhilian Jialei and Xinchuang Qifu, one is to deepen the integration of industry and education, enhance school-enterprise cooperation, and the other is to further improve the vocational education industry chain and enhance competitiveness.
(1) Zhilian Jialei
Zhilian Jialei is the operating company of the Digital Developer Sharing Platform (Ape Chain) of the China Electronic Chamber of Commerce, and is a strategic partner of the Kylin Software Education Development Center, which is mainly responsible for providing the training and certification of the professional qualification certificates of artificial intelligence and blockchain software engineers issued by the Ministry of Industry and Information Technology, and the engineer training of Kylin Software and related domestic key application software in the information and innovation sector, and providing an internship training platform for college students who have obtained the certificate, and participating in the adaptation of Kylin software. In 2022, Zhilian Jialei carried out online and offline training at the same time, provided training services for nearly 100 state-owned enterprises and central enterprises, maintained a pass rate of more than 90%, and successfully cultivated hundreds of professional and technical talents in the operation and maintenance of domestic operating systems.
(2) Information and innovation
The main business of Xinchuang Qifu is flexible employment vocational education courses. Xinchuang Qifu has developed a series of "micro-entrepreneurship" courses to support college students' entrepreneurship or re-employment, and formed a new education model of "mentor + talent promotion + knowledge payment + landing guidance". At present, the construction of the curriculum system and tutor system has been completed, and a number of tutors have been signed to teach, among them, Shen Chen is the main teacher of the new ** marketing "Underlying Logic + Fang**" Ou Feng is the main course of food and beverage industry, Wang Tao is the main law and finance and taxation course, and a full set of sales courses for entrepreneurship in the benchmarking industry. It has also established a course delivery and service platform, completed the exploration of the minimum business model, and entered the stage of large-scale operation. The company plans to develop online and offline courses, mainly delivering low-cost courses to attract the introduction of entrepreneurship, and the core products are offline training services and entrepreneurial guidance.
4.2. AI+ education: We are optimistic about the independence and controllability of China's AI chips, and jointly cultivate AI talents
Shareholding in AI chip company Zhonghao Xinying is an important part of the implementation of artificial intelligence. Zhonghao Xinying is an innovative high-tech enterprise co-founded by experienced software and hardware design experts in large chips and AI large models returned from Silicon Valley, and is committed to developing high-performance artificial intelligence chips and computing clusters that support ultra-large-scale artificial intelligence model training, and creating a complete software and hardware integration solution. Zhonghao Xinying was established in 2020 and has achieved revenue of 81.69 million yuan in 2022. According to the VAM agreement, the total sales revenue of Zhonghao Xinying in the two years from 2023 to 2024 shall not be less than 7600 million yuan, of which the total sales revenue in 2023 shall not be less than 20.8 billion yuan. The main VAM clause also includes the need for Zhonghao Xinying to complete the IPO or be acquired by December 31, 2026.
The demand for artificial intelligence-related training is expected to increase rapidly, and we will join hands with Zhonghao Xinying to deploy AI+ education. The cooperation between the company and Zhonghao Xinying mainly focuses on two aspects, (1) social skills: the two sides will cooperate in the development of such software engineer training based on the direction of artificial intelligence, Zhonghao Xinying gives the course technical content, course iteration and development of software platform, and the company is responsible for training planning, landing, marketing promotion and certification. (2) Co-construction of higher vocational courses: The company is the general manager of Zhonghao Xinying's vocational education and college cooperation, and is responsible for developing the business of colleges and universities for Zhonghao Xinying, establishing a national education and teaching, equipment sales and college cooperation network, and establishing a national education and teaching, equipment sales and college cooperation network.
This article is for informational purposes only and does not represent any investment advice from us. To use the information, please refer to the original report. ）
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