Gaotu(US:GOTU) Tianfeng Securities·2024-04-10 16:00Investment Rating - The report assigns a "Buy" rating for the company, marking its first coverage [1]. Core Insights - The company, Gaotu Group, is a leading internet education technology firm in China, focusing on K12 education and gradually recovering its profitability through refined operations and a dual-teacher model [1][6]. - The online education market is experiencing rapid growth, driven by digital transformation and increasing user demand, with the market size expanding significantly from 156.5 billion to 322.6 billion RMB between 2016 and 2019, reflecting a CAGR of 27.3% [1][25]. - The company is actively investing in AI and education technology, with R&D expenditures growing from 0.74 billion to 4.62 billion RMB from 2018 to 2023, indicating a CAGR of 44.2% [1][41]. Summary by Sections 1. Multi-Channel Business Layout and Gradual Profit Recovery - The company focuses on K12 online education and has expanded into new business areas, achieving steady revenue growth with 2023 revenue reaching 2.961 billion RMB, a year-on-year increase of 18.52% [1][20]. - The gross profit margin for 2023 was 73.3%, while the net profit margin was -0.25%, indicating a gradual recovery in profitability [20][21]. 2. Accelerated Penetration of Online Education Market - The online education market is benefiting from digital transformation, with significant growth in K12 education products during the pandemic [25][27]. - The vocational education market is also expanding, with increasing government investment in educational funding, which rose from 190.9 billion RMB in 2012 to 296.8 billion RMB in 2021 [32][34]. 3. Continuous Development of "AI + Education" and Brand Empowerment through Live Streaming - The company is enhancing its AI capabilities in education, with plans to invest heavily in AI applications to improve teaching efficiency and service quality [41][44]. - The establishment of Gaotu Jiapin Technology Co., Ltd. marks the company's entry into the e-commerce live streaming sector, leveraging its brand to promote high-quality products [45][47]. 4. Profit Forecast and Valuation - Revenue projections for 2024-2026 are estimated at 4.293 billion, 5.796 billion, and 7.245 billion RMB, with net profits expected to be 30 million, 90 million, and 198 million RMB respectively [2].