Financial Performance - Revenue for the first half of 2024 reached RMB 317.4 million, representing a 68.1% increase compared to RMB 188.9 million in the same period of 2023[7] - Gross profit for the first half of 2024 was RMB 142.7 million, up 104.5% from RMB 69.8 million in the first half of 2023[7] - Net profit for the first half of 2024 increased to RMB 54.4 million, a significant rise of 170.0% from RMB 20.2 million in the same period last year[7] - Adjusted net profit for the first half of 2024 was RMB 54.4 million, reflecting a 168.9% increase compared to RMB 20.2 million in the first half of 2023[7] - Total revenue increased by 68.1% from approximately RMB 188.9 million in the first half of 2023 to approximately RMB 317.4 million in the reporting period, primarily driven by the growth in quality education services[24] - Gross profit rose by 104.5% from approximately RMB 69.8 million in the first half of 2023 to approximately RMB 142.7 million, with gross margin increasing from 36.9% to 45.0%[26] - Profit for the reporting period increased by 170.0% from approximately RMB 20.2 million in the first half of 2023 to approximately RMB 54.4 million[34] - Basic earnings per share increased to RMB 7.25 from RMB 2.78, reflecting a significant growth in profitability[72] Contract Liabilities and Assets - The company achieved a contract liability of approximately RMB 458.4 million, which is a 116.5% increase year-on-year[8] - Contract liabilities increased by 116.5% to approximately RMB 458.4 million as of June 30, 2024, compared to RMB 211.8 million on December 31, 2023, primarily due to business growth[38] - The group held financial assets including debt investments of approximately RMB 70.9 million and equity investments of approximately RMB 33.3 million as of June 30, 2024[41] - The total carrying value of the group's interests in joint ventures was RMB 8,886,000, slightly up from RMB 8,871,000[108] - The total assets were RMB 137,914,000, up from RMB 115,753,000, reflecting a growth of approximately 19.1%[115] Employee and Management Initiatives - The company implemented employee incentives through equity incentives to boost staff motivation and engagement[8] - The proportion of employees from prestigious universities significantly increased due to the company's recruitment efforts, including a mentorship program for new hires[15] - The company granted restricted stock units to several employees on April 30, 2024, enhancing employee loyalty and motivation, promoting shared growth and long-term development[15] - Total employee costs for the period amounted to RMB 131,738,000, up from RMB 95,219,000, indicating a rise of 38.3%[92] - The total compensation for directors and key management personnel for the six months ended June 30, 2024, was RMB 5,438,000, compared to RMB 4,025,000 for the same period in 2023, representing an increase of approximately 35.2%[133] Compliance and Governance - The company maintained compliance with regulatory requirements while achieving significant growth in the first half of 2024[8] - The audit committee has reviewed the interim financial information and confirmed compliance with applicable accounting standards[55] - The company has adopted the corporate governance code as per the Hong Kong Stock Exchange listing rules[51] - The company is committed to compliance and will optimize course content to meet national education policies while ensuring high-quality teaching resources[17] Strategic Initiatives and Market Focus - The launch of the "Kunpeng Youth Growth Camp Project" marked a successful transition to quality education, gaining recognition from parents and students[8] - The company actively embraced AI technology to enhance organizational efficiency for students, teachers, and management teams[8] - The company aims to deepen quality education by developing diverse and interactive courses that align with national expectations and enhance students' core competencies[18] - The company plans to focus on the Greater Bay Area, particularly Shenzhen and Foshan, to meet the growing demand for quality education services driven by economic development and rising parental investment[19] Financial Position and Cash Flow - Cash and cash equivalents as of June 30, 2024, amounted to approximately RMB 495.7 million[37] - Current ratio decreased to approximately 1.09 as of June 30, 2024, down from 1.25 on December 31, 2023[39] - The company’s cash and cash equivalents significantly increased to RMB 495,735 thousand from RMB 281,928 thousand, reflecting a growth of approximately 75.9%[73] - The net cash generated from operating activities for the six months ended June 30, 2024, was RMB 328,545 thousand, compared to RMB 84,059 thousand for the same period in 2023, reflecting a significant increase of approximately 290.5%[76] Shareholder Information - As of June 30, 2024, the company has a total of 847,221,000 shares issued[60] - Major shareholders include JTC Trustees (BVI) Limited holding 53.93% of the issued shares, and Elite Education Investment Co. Ltd. with 20.20%[62] - The company has retained 27,292,396 existing shares under the restricted share unit plan, with an additional 43,540,000 shares to be issued[64] - The company has no controlling shareholder or ultimate controller as of June 30, 2024, due to the absence of shareholders with majority voting rights[78] Investment and Acquisitions - The company is actively pursuing a license for non-subject profit-making education in Guangzhou, enhancing business sustainability[9] - The group has developed a complete learning system for programming education, covering hardware and software from robotics to Python and C++[12] - The company has entered into a series of agreements to change the registered shareholders of its subsidiary, enhancing internal control and operational efficiency[66] Impairment and Losses - The group recorded a fair value loss of approximately RMB 84.9 million related to financial assets due to ongoing litigation with Minsheng Trust[45] - The group confirmed a net impairment loss of approximately RMB 35.6 million related to overdue investments with Zhongcheng Construction Group[46] - The company recognized a net impairment loss of RMB (530,000) under the expected credit loss model, a decrease from RMB 5,580,000 in the previous year[72] Fair Value Measurements - The fair value of financial assets measured at fair value through profit or loss as of June 30, 2024, totaled RMB 71,866,000, with RMB 25,892,000 from listed equity investments and RMB 45,974,000 from debt instruments[136] - The company closely collaborates with qualified external valuers to establish applicable valuation techniques and input data for fair value assessments[134]

Investment Rating - The report initiates coverage with an "Accumulate" rating for the company [1] Core Views - In the first half of 2024, the company achieved revenue of 317 million RMB, representing a year-on-year growth of 68.1%, and a net profit attributable to shareholders of 55 million RMB, up 160.7% year-on-year [1] - The company has made significant progress in its transformation towards quality education, with contract liabilities increasing by 116.5% year-on-year to 458 million RMB, indicating strong revenue conversion potential for the full year [1] - The company is enhancing organizational efficiency through AI investments, resulting in a management expense ratio of 12.9%, a decrease of 2.26 percentage points year-on-year [1] - A stock incentive plan was implemented, granting 58 million restricted shares to 552 employees, which is expected to boost employee engagement and long-term company growth [1] - Revenue forecasts for 2024-2026 are projected at 1.01 billion RMB, 1.80 billion RMB, and 2.50 billion RMB, with net profits of 176 million RMB, 278 million RMB, and 374 million RMB respectively, indicating a strong growth trajectory [1] Financial Summary - For 2024E, total revenue is expected to reach 1,015 million RMB, with a growth rate of 107.4% compared to 2023A [4] - The net profit attributable to shareholders is projected to be 176 million RMB in 2024E, reflecting a growth rate of 92.5% [4] - The company's total assets are forecasted to increase from 1,046 million RMB in 2023A to 1,259 million RMB in 2024E [5]

Investment Rating - The report assigns an "Accumulate" rating to the company [3][9]. Core Views - The revenue met expectations while profits exceeded expectations, with an improved competitive landscape benefiting the leading players. The rapid growth of contract liabilities provides assurance for the performance in the second half of 2024, with a focus on the realization of peak season performance [2]. Summary by Sections Financial Performance - For the first half of 2024 (2024H1), the company achieved revenue of 317 million yuan, representing a 68% increase. Gross profit reached 143 million yuan, up 105%, with a gross margin of 44.96%, an increase of 8 percentage points. Adjusted net profit attributable to shareholders was 55 million yuan, a 161% increase, with a margin of 17.18%, up 6.1 percentage points [3][6]. Business Segmentation - The company's full-time review business generated 124 million yuan (+20%), tutoring projects brought in 76 million yuan (+32%), and quality education surged to 118 million yuan (+321%) in 2024H1. The growth was primarily driven by natural increases in core business segments [3]. Contract Liabilities - Contract liabilities grew significantly to 458 million yuan (+184%) in 2024H1, compared to 160 million yuan in 2023H1 and 212 million yuan at the end of the 2023 fiscal year. This growth is attributed to orders for summer and autumn classes, which will contribute to revenue in the second half of the year [3].

Investment Rating - The investment rating for the company is "Buy" with a target price set at 2.79 HKD, maintaining the rating for the next six months [3]. Core Insights - The company reported a significant increase in revenue and net profit for the first half of 2024, with revenue reaching 320 million RMB, a year-on-year increase of 68.1%, and net profit of 50 million RMB, up 160.7% [3]. - The growth in performance is attributed to a low base from the previous year and successful product transformation that has been well-received by parents and students [3][4]. - The company has been proactive in complying with educational policies, achieving zero penalties during inspections and actively pursuing licenses for non-academic programs, which enhances its sustainable development [4][6]. Financial Performance - For the first half of 2024, the company reported a gross margin of 45.0%, an increase of 8.0 percentage points, and a net margin of 16.5%, up 6.0 percentage points [3]. - The company’s contract liabilities reached 460 million RMB, reflecting a year-on-year increase of 116.5% [3]. Business Segmentation - In terms of business segments, the full-time review income was 120 million RMB, up 19.7%, while tutoring projects generated 80 million RMB, a 31.9% increase. The quality education segment saw remarkable growth, with revenue of 120 million RMB, up 320.9% [3]. Future Outlook - The company has revised its earnings forecast upwards, projecting revenues of 880 million RMB, 1.53 billion RMB, and 1.83 billion RMB for 2024-2026, respectively [6]. - The adjusted net profits for the same period are expected to be 180 million RMB, 280 million RMB, and 340 million RMB [6].

Introduction - **Industry/Company**: Not specified - **Key Points**: - Welcome message from the host, Huang Kaolin, Investor Relations Deputy Director - Introduction of the management guest: Tang Junjun, Chairman and Group President - **Document ID**: [1]

Summary of Conference Call Company and Industry Involved - The conference call involves a company represented by its Chairman and Group President, Mr. Tang Junxing, and is hosted by the Vice President of Investor Relations, Huang Kailin [1]. Core Points and Arguments - The meeting welcomes both in-person and online attendees, indicating a broad interest in the company's performance and future outlook [1]. Other Important but Possibly Overlooked Content - The presence of familiar attendees suggests a strong relationship with investors and stakeholders, which may indicate confidence in the company's communication strategy [1].

[Financial Highlights](index=1&type=section&id=Financial%20Highlights) [Financial Highlights](index=1&type=section&id=Financial%20Highlights) The Group achieved robust performance in H1 2024, with total revenue reaching RMB 317 million, gross profit doubling to RMB 143 million, and net profit surging by 170.0% to RMB 54.415 million Key Financial Indicators for H1 2024 | Metric | For the six months ended June 30, 2024 (RMB thousands) | For the six months ended June 30, 2023 (RMB thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | 317,444 | 188,860 | 68.1% | | Gross Profit | 142,723 | 69,780 | 104.5% | | Net Profit | 54,415 | 20,152 | 170.0% | | Adjusted Net Profit | 54,415 | 20,234 | 168.9% | [Consolidated Financial Statements](index=2&type=section&id=Consolidated%20Financial%20Statements) [Interim Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income](index=2&type=section&id=Interim%20Condensed%20Consolidated%20Statement%20of%20Profit%20or%20Loss%20and%20Other%20Comprehensive%20Income) The statement shows a significant increase in profitability, with H1 2024 revenue growing to RMB 317 million and profit for the period rising from RMB 20.15 million to RMB 54.41 million, driven by strong revenue growth and fair value gains on financial assets H1 2024 Statement of Profit or Loss Summary | Item | For the six months ended June 30, 2024 (RMB thousands) | For the six months ended June 30, 2023 (RMB thousands) | | :--- | :--- | :--- | | Revenue | 317,444 | 188,860 | | Gross Profit | 142,723 | 69,780 | | Profit Before Tax | 74,167 | 23,238 | | Profit for the Period | 54,415 | 20,152 | | Basic Earnings Per Share | RMB 7.25 cents | RMB 2.78 cents | [Interim Condensed Consolidated Statement of Financial Position](index=3&type=section&id=Interim%20Condensed%20Consolidated%20Statement%20of%20Financial%20Position) As of June 30, 2024, the Group's balance sheet shows expanded assets and strengthened equity, with total assets increasing from RMB 1.046 billion to RMB 1.408 billion and contract liabilities doubling to RMB 458 million, reflecting strong pre-sales Key Balance Sheet Item Changes | Item | June 30, 2024 (RMB thousands) | December 31, 2023 (RMB thousands) | | :--- | :--- | :--- | | Total Assets | 1,408,272 | 1,046,376 | | Total Liabilities | 883,907 | 549,841 | | Contract Liabilities | 458,425 | 211,784 | | Cash and Cash Equivalents | 495,735 | 281,928 | | Net Assets | 524,265 | 496,435 | [Notes to the Interim Condensed Consolidated Financial Statements](index=5&type=section&id=Notes%20to%20the%20Interim%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed information on the company's operations, accounting policies, revenue breakdown, taxation, dividends, EPS, and financial assets, highlighting its VIE structure, rapid growth in quality-oriented education, and fair value gains [Notes 1-2: Company Information and Basis of Preparation](index=5&type=section&id=Notes%201-2%3A%20Company%20Information%20and%20Basis%20of%20Preparation) The company, a Cayman Islands investment holding entity, operates education businesses in mainland China via a VIE structure due to regulatory restrictions, with financial statements prepared under the going concern assumption in RMB - Core businesses include **full-time review programs, quality-oriented education, self-study programs, vocational education, and after-school tutoring for high school students**[6](index=6&type=chunk) - The Group operates through a **VIE structure** due to foreign ownership restrictions on extracurricular education in mainland China[6](index=6&type=chunk) - Effective January 1, 2022, the company's functional currency changed from **USD to RMB**[7](index=7&type=chunk) [Notes 3-4: Revenue and Operating Segments](index=7&type=section&id=Notes%203-4%3A%20Revenue%20and%20Operating%20Segments) The Group's revenue primarily stems from full-time review, quality-oriented education, and tutoring programs, with quality-oriented education revenue surging by 320.9% in H1 2024, driving overall growth as the Group is managed as a single operating segment Revenue by Major Products and Services | Business Segment | H1 2024 (RMB thousands) | H1 2023 (RMB thousands) | Year-on-Year Growth | | :--- | :--- | :--- | :--- | | Full-time Review Programs | 123,927 | 103,573 | 19.7% | | Quality-oriented Education | 117,969 | 28,025 | 320.9% | | Tutoring Programs | 75,548 | 57,262 | 31.9% | | **Total** | **317,444** | **188,860** | **68.1%** | [Notes 5-8: Taxation, Profit for the Period, Dividends, and Earnings Per Share](index=8&type=section&id=Notes%205-8%3A%20Taxation%2C%20Profit%20for%20the%20Period%2C%20Dividends%2C%20and%20Earnings%20Per%20Share) Income tax expense for the period was RMB 19.75 million, with profit for the period derived after deducting expenses like depreciation and staff costs; the company paid a final dividend for 2023 but proposed no interim dividend for 2024, resulting in basic EPS of RMB 7.25 cents - **Income tax expense** for H1 2024 was **RMB 19.75 million**, a significant increase from RMB 3.09 million in the prior period[14](index=14&type=chunk) - A **final dividend of RMB 3.2 cents per share** for the year ended December 31, 2023, was paid on June 6, 2024, with no interim dividend proposed for the reporting period[18](index=18&type=chunk) - **Basic earnings per share** was **RMB 7.25 cents**, compared to RMB 2.78 cents in the prior period[19](index=19&type=chunk) [Notes 9-11: Financial Assets and Share Capital](index=11&type=section&id=Notes%209-11%3A%20Financial%20Assets%20and%20Share%20Capital) As of June 30, 2024, the Group held RMB 71.87 million in financial assets at fair value through profit or loss, which generated a gain of RMB 2.89 million for the period, reversing a prior-year loss of RMB 17.94 million, while the company's share capital remained unchanged - Total **financial assets at fair value through profit or loss** amounted to **RMB 71.87 million**, comprising RMB 64.47 million in current assets and RMB 7.39 million in non-current assets[21](index=21&type=chunk) - Fair value changes in financial assets resulted in a **gain of RMB 2.89 million** for the period, primarily from listed equity investments, reversing a loss of RMB 17.94 million in the prior period[23](index=23&type=chunk) [Management Discussion and Analysis](index=14&type=section&id=Management%20Discussion%20and%20Analysis) [Performance Review](index=14&type=section&id=Performance%20Review) In H1 2024, the Group achieved excellent results by adhering to compliance, successfully transforming into quality-oriented education, and embracing AI, with revenue growing 68.1% to RMB 317 million and net profit surging 170.0% to RMB 54.4 million H1 2024 Performance Highlights | Metric | H1 2024 (RMB millions) | Year-on-Year Growth | | :--- | :--- | :--- | | Revenue | 317.4 | 68.1% | | Net Profit | 54.4 | 170.0% | | Contract Liabilities | 458.4 | 116.5% | - Key growth drivers include the **successful transformation to quality-oriented products**, which have gained significant market recognition from parents and students[26](index=26&type=chunk) [Core Strategies and Operational Highlights](index=14&type=section&id=Core%20Strategies%20and%20Operational%20Highlights) The Group focused on four core areas: maintaining compliance with zero penalties, deepening quality-oriented education transformation, leveraging AI for efficiency and talent retention through equity incentives, and fulfilling social responsibility via "Party Building + Public Welfare" initiatives [Compliance Operations](index=14&type=section&id=Compliance%20Operations) The Group strictly adheres to national policies like "Double Reduction," upgrading compliance in all operational aspects, achieving zero penalties across 65 inspections, and actively pursuing non-academic for-profit school licenses in Guangzhou to ensure business continuity - Strict adherence to the **"Double Reduction" policy** and other education laws ensures a foundation of compliant operations[27](index=27&type=chunk) - The Group underwent **65 inspections** by various levels of government during the reporting period, achieving a **zero penalty record**[28](index=28&type=chunk) [Quality-Oriented Education Transformation](index=15&type=section&id=Quality-Oriented%20Education%20Transformation) The Group achieved significant progress in quality-oriented education, launching nine officially certified products like "Excellent Programming" and "Dida Literature," and introducing the "Kunpeng Youth Growth Camp" based on its "Six-Ability Model," gaining strong market recognition - Launched **9 quality-oriented products**, including "Excellent Programming" and "Dida Literature," which were among the first non-academic products certified by education authorities in Guangdong Province[29](index=29&type=chunk) - Introduced the **"Kunpeng Youth Growth Camp Project"** based on its proprietary **"Six-Ability Model"** (learning, critical thinking, aesthetic appreciation, creativity, communication, and health)[29](index=29&type=chunk) [AI Empowerment and Talent Incentives](index=17&type=section&id=AI%20Empowerment%20and%20Talent%20Incentives) The Group increased AI investment to enhance personalized learning, teaching assistance, and campus management efficiency, while expanding its talent pool through recruitment and granting restricted share units to 552 employees in April 2024 to foster shared growth - Increased investment in AI to provide **personalized error management for students** and **teaching assistance for teachers**, enhancing organizational efficiency[32](index=32&type=chunk) - On April 30, 2024, **restricted share units were granted to 552 employees** under the Restricted Share Unit Scheme to incentivize staff[33](index=33&type=chunk) [Social Responsibility](index=18&type=section&id=Social%20Responsibility) Upholding its "education with warmth" philosophy, the Group actively engages in educational philanthropy, supporting rural schools and donating resources to promote educational equity, while also exploring a "Party Building + Public Welfare" model to foster social responsibility - Actively engaged in **charitable activities to support disadvantaged rural schools**, promoting balanced urban-rural educational resources[34](index=34&type=chunk) - Actively explored the **"Party Building + Public Welfare" model** to fulfill social responsibilities[34](index=34&type=chunk) [Future Development](index=19&type=section&id=Future%20Development) Looking ahead, the Group will maintain compliance and focus on five key areas: deepening quality-oriented education, expanding in the Greater Bay Area, prioritizing talent development, embracing AI for efficiency, and promoting healthy industry growth for sustainable high-quality development - Future strategy will focus on **maintaining compliance, deepening quality-oriented education, expanding in South China, prioritizing talent development, and embracing AI technology**[35](index=35&type=chunk)[36](index=36&type=chunk)[38](index=38&type=chunk)[39](index=39&type=chunk)[41](index=41&type=chunk) [Strategic Outlook](index=19&type=section&id=Strategic%20Outlook) The Group's clear future strategy involves strict compliance, continuous deepening of quality-oriented education, focused expansion in the Greater Bay Area (especially Shenzhen and Foshan), prioritizing talent development, and leveraging AI for innovative teaching and operational efficiency to achieve sustainable high-quality growth - Adhere to **compliance operations**, closely follow national education policy guidance, and promote healthy industry development[35](index=35&type=chunk) - Deepen the **transformation to quality-oriented education**, conducting in-depth R&D and continuous upgrades of existing products[36](index=36&type=chunk) - Focus on the **Greater Bay Area**, particularly the Shenzhen and Foshan markets, to localize and innovate educational services[38](index=38&type=chunk) [Financial Review](index=22&type=section&id=Financial%20Review) In H1 2024, the Group demonstrated strong financial performance, with total revenue growing 68.1% driven by a 320.9% surge in quality-oriented education, leading to an improved gross margin of 45.0% and a 170.0% increase in net profit to RMB 54.4 million [Profit or Loss Statement Analysis](index=22&type=section&id=Profit%20or%20Loss%20Statement%20Analysis) During the period, revenue grew 68.1% to RMB 317 million, significantly boosted by quality-oriented education, while sales costs increased slower than revenue, improving gross margin to 45.0%, and profit for the period surged 170.0% Revenue Breakdown by Business Segment | Business Segment | H1 2024 (RMB thousands) | H1 2023 (RMB thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Full-time Review | 123,927 | 103,573 | 19.7% | | Tutoring Programs | 75,548 | 57,262 | 31.9% | | Quality-oriented Education | 117,969 | 28,025 | 320.9% | | **Total** | **317,444** | **188,860** | **68.1%** | - **Gross profit margin** increased from **36.9% in H1 2023 to 45.0%** in the reporting period, primarily due to improved operating efficiency[46](index=46&type=chunk) - **Profit** increased by **170.0%** from approximately **RMB 20.2 million in H1 2023 to approximately RMB 54.4 million** in the reporting period[55](index=55&type=chunk) [Financial Position and Liquidity Analysis](index=25&type=section&id=Financial%20Position%20and%20Liquidity%20Analysis) As of June 30, 2024, the Group maintained a robust financial position with approximately RMB 496 million in cash and equivalents, a current ratio of 1.09, a leverage ratio of 0.63, no bank loans, and RMB 104 million in financial assets for treasury management - As of June 30, 2024, the Group's **cash and cash equivalents** amounted to approximately **RMB 495.7 million**[58](index=58&type=chunk) - The **current ratio** was approximately **1.09**, and the **leverage ratio** was **0.63**[59](index=59&type=chunk) - The Group holds **financial assets** totaling approximately **RMB 104.2 million**, including **debt investments of RMB 70.9 million** and **equity investments of RMB 33.3 million**[61](index=61&type=chunk) [Other Information](index=27&type=section&id=Other%20Information) [Human Resources](index=27&type=section&id=Human%20Resources) As of June 30, 2024, the Group's total number of employees more than doubled to 1,785, with the company attracting and retaining talent through regular salary reviews, continuous training, and the implementation of restricted share unit and share option schemes - As of June 30, 2024, the Group had a total of **1,785 employees**, compared to 846 as of December 31, 2023[64](index=64&type=chunk) [Dividends and Share Schemes](index=27&type=section&id=Dividends%20and%20Share%20Schemes) The Board resolved not to declare an interim dividend for 2024, while 58 million restricted share units were granted to 552 employees on April 30, 2024, with the trustee holding approximately 7.5% of the company's issued shares for the scheme - The Board resolved **not to declare an interim dividend** for the six months ended June 30, 2024[64](index=64&type=chunk) - On April 30, 2024, **58 million restricted share units were granted to 552 employees**[65](index=65&type=chunk) [Corporate Governance](index=28&type=section&id=Corporate%20Governance) The company largely complied with corporate governance codes, with the chairman and CEO being the same person for leadership consistency, though a recent independent non-executive director resignation temporarily impacts board composition, and the audit committee has reviewed the interim results - The company complied with the Corporate Governance Code, except for the **Chairman and Chief Executive Officer being the same person** (a deviation from Code Provision C.2.1)[66](index=66&type=chunk) - Due to the **resignation of an independent non-executive director** on July 31, 2024, the company temporarily does not meet Listing Rules requirements regarding the number and proportion of INEDs and the composition of the Nomination Committee[68](index=68&type=chunk) - The **Audit Committee reviewed the interim results**, confirming compliance with applicable accounting principles and adequate disclosure[71](index=71&type=chunk)

Investment Rating - The report gives a **Buy** rating for the company, with a target price of **6.18 HKD** for 2025, based on a 25X PE valuation [75] Core Views - The company is a leading K12 education provider in Guangdong, with strong growth potential in the post-"Double Reduction" policy environment [75] - The company has successfully transitioned to a focus on **quality education**, **high school tutoring**, and **full-time exam preparation**, achieving balanced development across these three segments [75] - The company's market share in Guangzhou is less than 2%, indicating significant room for growth [48] - The company's revenue is expected to grow at a CAGR of **8.7%** in Guangzhou and **13.6%** in Shenzhen from 2023 to 2028, with the combined K12 tutoring market size projected to exceed **130 billion RMB** by 2028 [48][19] Market and Industry Analysis - The "Double Reduction" policy has led to a significant reduction in the number of offline and online subject-based tutoring institutions, with a **96% reduction** in offline institutions and an **87.1% reduction** in online institutions [51] - The policy has also mandated that all subject-based tutoring institutions for compulsory education must register as **non-profit entities** [1][51] - The company has leveraged its strong reputation and low marketing costs to rapidly expand in the quality education sector, with a **5.16% sales expense ratio** in 2023, one of the lowest in the industry [43] Company Strategy and Competitive Advantages - The company has capitalized on its **strong Chinese language teaching advantage**, transitioning its popular Chinese language courses into non-subject-based quality education products such as "Fun Little Journalist," "Dida Literature," and "Literary Aesthetic Education" [15] - The company has developed a comprehensive teacher training system, including the "Fuguang Plan" and "Xingyao Plan," to enhance teacher skills and retention [29][30] - The company is actively embracing **AI technology** to improve teaching efficiency, with R&D expenses growing at a CAGR of **14.2%** from 2015 to 2021 [63] Financial Performance and Projections - The company's revenue in 2023 was **506 million RMB**, with a net profit of **90 million RMB**, representing a **66.2% YoY growth** [80] - Revenue is expected to grow to **663 million RMB** in 2024, **860 million RMB** in 2025, and **1.109 billion RMB** in 2026, with net profit growing to **122 million RMB**, **167 million RMB**, and **226 million RMB** respectively [75] - The company's **quality education segment** is expected to grow at a CAGR of **49%** from 2024 to 2026, contributing **45 million RMB**, **69 million RMB**, and **101 million RMB** to net profit respectively [110] Regional Market Potential - Guangzhou and Shenzhen are experiencing **increasing demand** for K12 tutoring, driven by rising middle and high school enrollment numbers [107] - The company is well-positioned to benefit from the **unified provincial high school entrance exam** in Guangdong, which will allow for standardized teaching materials and easier expansion into other cities [50] Risks and Challenges - The company faces risks related to **market competition**, **expansion delays**, and **potential tuition fee increases** that may not meet expectations [119] - There is also a risk of **management and teacher turnover**, which could impact the company's growth and operational efficiency [119]

Investment Rating - The report assigns an "Accumulate" rating for the company for the first time [2] Core Viewpoints - The company is a leading education service provider in South China, focusing on compliance transformation post "Double Reduction" policy, and aims to build a business system of "Quality Education + Full-time Review + Vocational Education" [5][13] - The K12 student population in Guangdong continues to rise, with strong demand for non-subject training and high school repeaters, indicating potential for accelerated expansion in quality education services [5][37] Summary by Sections Company Overview - Established in October 1997, the company has developed a strong reputation in South China, achieving a revenue of 506 million yuan in 2023 [4][52] - The company has been recognized as a leading education service provider in the region, focusing on diverse educational products and services [4][52] Business Transformation - Following the "Double Reduction" policy, the company has shifted its focus to compliance and quality education, establishing a strategic framework that includes full-time review and vocational education [5][13][56] - The company has successfully launched nine quality education products that have passed non-subject product certification by educational authorities [13][75] Market Potential - The K12 education market in Guangdong is expected to benefit from a growing student population, with the number of K12 students reaching 17.49 million in 2022, a year-on-year increase of 2.37% [37][40] - The "Double Reduction" policy has led to a significant reduction in the number of training institutions, creating opportunities for compliant and established providers like the company [40][72] Financial Projections - The company forecasts net profits of 122 million yuan, 161 million yuan, and 200 million yuan for 2024, 2025, and 2026 respectively, with corresponding PE ratios of 22x, 17x, and 14x [5][85] - Revenue is projected to grow from 489 million yuan in 2023 to 627 million yuan in 2024, reflecting a growth rate of 28.17% [14][129] Competitive Landscape - The company is positioned as the largest K12 extracurricular education service provider in South China, with a market share of approximately 7% in the full-time review business [68][71] - The competitive environment is expected to intensify as more institutions transition to non-subject training, which may impact the company's performance [114][133]

Shareholder and Equity Interests - The board members and CEO held significant equity interests, with Mr. Tang Junjing owning 1,532,000 shares (20.38%) and Mr. Tang Junying owning 50,000 shares (16.94%) of the company[4]. - Major shareholders included JTC Trustees (BVI) Limited, holding 456,934,231 shares, representing 53.93% of the issued shares[7]. - The equity interests of major shareholders included significant holdings by spouses, such as Ms. Huang Yanjun with 172,697,101 shares (20.38%)[8]. - The company had no unexercised stock options as of the report date, indicating a potential focus on other compensation strategies[1]. - The company did not establish any arrangements for directors to benefit from purchasing shares or debt securities during the reporting period[14]. - The company has not made any loans or provided guarantees to directors, senior management, or their associates during the reporting period[150]. - The company has no controlling shareholders as of November 9, 2023, following the termination of a joint action agreement[195]. Financial Performance - For the fiscal year ending December 31, 2023, the company reported total revenue of RMB 489.314 million, a slight decrease of 0.4% compared to RMB 491.134 million in 2022[33]. - Gross profit for the same period was RMB 229.858 million, representing a significant increase of 32.8% from RMB 173.061 million in the previous year[33]. - Net profit surged to RMB 89.880 million, marking a 66.2% increase from RMB 54.073 million in 2022[33]. - Adjusted net profit was RMB 89.225 million, up 62.8% from RMB 54.799 million in the prior year[33]. - Total revenue for the full-time review segment increased by 25.2% to RMB 204.8 million, while the tutoring segment decreased by 40.9% to RMB 144.9 million[73]. - The group recorded a profit of approximately RMB 89.9 million, representing a 66.2% increase compared to RMB 54.1 million in 2022[78]. - The adjusted net profit increased by 62.8% from RMB 54.8 million in 2022 to RMB 89.2 million during the reporting period[79]. - The unadjusted net profit for 2023 was RMB 89.88 million, a 66.2% increase from RMB 54.07 million in 2022[80]. - Other income decreased by 47.5% to RMB 29.4 million, primarily due to lower service fee income and investment income[49]. - Administrative expenses decreased by 34.7% to approximately RMB 57.9 million, down from RMB 88.7 million in 2022[50]. - Other operating expenses decreased by 56.3% to RMB 30.7 million during the reporting period[76]. Employee and Operational Changes - The company has reduced its workforce to 846 employees as of December 31, 2023, down from 1,022 employees a year earlier, primarily due to the impact of the "double reduction" policy[18]. - The company continues to invest in employee training to improve skills and knowledge, ensuring alignment with market and student needs[18]. - The company has no mandatory participation in the Hong Kong Mandatory Provident Fund, as employees in its Chinese subsidiaries contribute to a state-managed retirement benefit plan[19]. Strategic Initiatives and Partnerships - The company is actively responding to national policies by establishing comprehensive strategic partnerships with vocational colleges, focusing on tailored educational programs[37]. - The introduction of the "Excellence 3+ Certificate Vocational College Entrance Exam Class" aims to enhance learning efficiency for vocational students through small class teaching and multimedia interactive tools[37]. - The group aims to enhance its core competitiveness through the continuous upgrade of its "Excellence Learning System" and "Life Growth System"[42]. Risk Management and Compliance - The company has implemented various measures to mitigate risks and uncertainties[113]. - The group faces risks related to natural disasters, pandemics, and other situations in China, which may significantly impact operations[113]. - The company relies on a dedicated and qualified teaching staff; failure to hire, train, and retain qualified teachers may adversely affect teaching quality and overall business performance[112]. - The company is monitoring the regulatory environment and will adjust its business plans accordingly[161]. - The company has not engaged in any significant legal disputes during the reporting period[178]. - There were no significant contingent liabilities, guarantees, or lawsuits against the company as of December 31, 2023[89]. Investment and Financial Assets - The company adopted a prudent investment strategy, focusing on low-risk short-term financial products to ensure stable investment income[84]. - The company held financial assets totaling RMB 102.3 million as of December 31, 2023, which includes debt investments of RMB 71.9 million and equity investments of RMB 30.4 million[57]. - As of December 31, 2023, the company reported a fair value loss of RMB 28.68 million on listed equity investments[87]. - The company recorded a fair value loss of approximately RMB 84.9 million related to a financial asset due to overdue payments from a trust plan[197]. - The company recognized a net impairment loss of approximately RMB 35.6 million based on expected credit loss models for certain financing plans[197]. Dividend Policy - The group plans to pay a final dividend of HKD 0.035 per share, amounting to approximately RMB 26.9 million, which is 30% of the total profit for the year[65]. - The board will continuously review the dividend policy but does not guarantee any specific period for recommending or declaring dividends[143]. Corporate Governance - The board consists of nine directors, with independent non-executive directors providing oversight and recommendations on compensation[159][157]. - The board of directors' service contracts for executive directors appointed before the listing date will be renewed for three years starting April 1, 2024[187]. - The company has not entered into any significant transactions with related parties during the reporting period[189].