The new campus is gradually realizing its growth potential, and education in the 21st century is entering a period of development dividends

In recent years, the state has paid more and more attention to vocational education, and relevant policies have been introduced to promote the development of vocational education and meet the society's demand for technical and skilled talents. In this context, the vocational education industry has ushered in unprecedented development opportunities.

21st Century Education Group, as an important participant in the field of vocational education, is firmly grasping the opportunity of this era with its profound business accumulation and forward-looking strategic layout. The author noted that the financial report recently released by the 21st Century Education Group shows that the company has achieved significant performance growth.

First, the three major growth drivers resonate

According to the performance report, the company will achieve operating income of up to 420 million yuan in 2023, a significant increase of 34.7% over the same period last year. At the same time, the profit during the year increased to 39.836 million yuan, an increase of 49.1% year-on-year. This performance reflects the company's outstanding growth ability and strong competitive advantage.

It is worth noting that the company has effectively controlled the expense ratio while increasing its performance. The administrative expense ratio for 2023 decreased by 3.0 percentage points from the previous year to 19.7%. In addition, the company's financial position is stable, with net cash flow from operating activities of 198 million yuan, an increase of 54.7% year-on-year, providing solid financial support for the company's future expansion and investment.

The achievements of the past year are the results of the company's long-term strategic layout and business accumulation. With the strong support of national policies, vocational education is ushering in unprecedented development opportunities. With its core competitiveness, balanced business structure, and "endogenous + extensive" two-wheel strategy, 21st Century Education Group has been able to seize the golden window.

More specifically, when it comes to the main drivers of performance growth, there are three key dimensions worth dissecting:

The first is that the company has achieved simultaneous growth in student size and tuition fees. In 2023, the total number of full-time students increased from 23,888 in 2022 to 27,662 in 2023, an increase of 15.8% year-on-year. The increase in the number of students has directly contributed to the growth of tuition income. At the same time, the market-oriented adjustment of tuition fees has further improved the company's revenue level, and the average tuition income of students in the company's vocational education sector will reach 9,151 yuan in 2023, a year-on-year increase of 9%.

The second is the balanced development of vocational education and non-vocational education. In the vocational education sector, the company achieved revenue of 270 million yuan, a year-on-year increase of 20.9%, while in the field of non-vocational education, through the new college entrance examination business, and the provision of diversified services such as high school education and preschool education, the revenue also reached 150 million yuan, a significant increase of 69.6% year-on-year. This fully demonstrates the company's comprehensive service strength in the field of education.

Finally, the company continues to expand its education service capabilities and service scope through organic growth and extended mergers and acquisitions. The organic growth is mainly reflected in the expansion of campus capacity, improving the education quality and service level of existing schools, so as to attract more students to enroll. Extended mergers and acquisitions are through acquisitions, quickly integrating external educational resources, and promoting the comprehensive expansion and deepening of business. Among them, through the acquisition of Shijiazhuang Yuying Experimental Middle School, 21st Century Education successfully introduced the general high school license, which also marked the company's official entry into the high school education track. It can be seen that the endogenous + epitaxial two-wheel drive development model has injected a strong impetus into the sustainable growth of education in the 21st century.

It can be seen that in the past year, the company has gradually improved the gradient vocational education and training system with multi-form convergence, multi-channel growth and sustainable development around the new vocational education as the main line, and initially realized the growth potential.

2. Deepen the new model of "symbiosis between industry and education".

In addition to horizontal extension and improvement of the vocational education and training system, 21st Century Education continues to deepen vertically, actively promotes the strategy of integration of industry and education, and enhances the connotation of "new vocational education service provider". In 2023, the company will deepen the practice of the integration of industry and education 5.0 - the "symbiosis of industry and education" model. This model marks a new depth in the company's practice of integration of industry and education.

School-enterprise cooperation: deep integration and common future

As of 2023, Shijiazhuang Polytechnic Vocational College has established close school-enterprise cooperation with many well-known enterprises. The college signed strategic cooperation agreements with leading enterprises such as JD.com and Tencent Cloud Computing to jointly build a demonstration base for the integration of industry and education and an industrial college. At present, the school has 28 majors and 17 enterprises to work together to carry out the joint construction of characteristic majors, set up 61 order classes, and pilot 16 apprenticeship majors. In addition, the college has also established 13 training bases for key professional groups, 61 on-campus experimental training centers and 247 off-campus training bases to provide students with rich practical opportunities.

At the same time, the college maintains industry-university-research cooperation with more than 700 enterprises such as Huawei, Haier, and Great Wall Motors, including more than 60 Fortune 500 companies. This cooperation model not only ensures the close integration of educational content with the needs of the industry, but also provides a high-quality employment platform for graduates.

Government and school cooperation: to help regional economic development

Shijiazhuang Polytechnic Vocational College actively responds to the government's call and makes use of its own educational resources to contribute to local economic development. The school works closely with government departments to carry out vocational education and social training, with a total of 13,739 people trained, and nearly 1,000 outstanding talents have been sent to many enterprises such as Luquan District of Shijiazhuang City. In addition, the college also cooperates with research institutions such as the Hebei Academy of Social Sciences to jointly conduct regional development research and provide intellectual support for local economic development.

School-Bank Cooperation: Broaden the boundaries of development

It is worth mentioning that Shijiazhuang Polytechnic Vocational College has been successfully selected into the list of "double high" construction colleges and universities in Hebei Province's Vocational Education Quality Improvement and Excellence Action Plan (2020-2023). In 2023, the college not only undertook the 25 important tasks in the plan, but also took the "double high" construction as the guide, and successfully established 16 apprenticeship pilot majors through the "five ones" and "three ones" construction projects, further deepening the practice of integration of industry and education. By the end of 2023, the school has successfully completed the collection of various materials for the construction of the "double high" and is waiting for the final acceptance by the government.

In order to connect more closely with the needs of the industry, Shijiazhuang Polytechnic Vocational College has actively joined many industry associations such as the National Chemical and Pharmaceutical Vocational Education Group and the Smart Medical Professional Committee of the Hebei E-Government Society and become its governing unit. This initiative not only provides students with more internship and employment opportunities that are closely linked to the needs of the industry, but also injects new vitality into the research and technological development activities of the college.

Thanks to the in-depth practice of the new model of integration of industry and education, Shijiazhuang Polytechnic Vocational College has achieved preliminary results. The employment rate of graduates in the 2022-2023 academic year is as high as 97.9% and has maintained five consecutive years of growth, which directly proves that this model is outstanding and effective in talent training. At the same time, the teaching quality and social reputation of the college have also been improved, and a large number of high-quality talents have been sent to social development.

3. Open a new chapter of growth

As a key component of the industry-education integration 5.0 model, the Gaoyi Campus of Shijiazhuang Polytechnic Vocational College was put into use in September 2023. This is an important milestone in the history of education development in the 21st century, and it is also a key step in deepening the strategy of integrating industry and education and achieving high-quality connotative development.

Since its official opening, the new campus of Shijiazhuang Polytechnic Vocational College has attracted a large number of students, with more than 8,200 new students, and the tuition and accommodation fees have been market-oriented, showing a steady growth trend, of which the average student tuition fee has increased by 9% year-on-year, fully demonstrating the competitiveness and pricing power of the education brand.

In terms of development planning, the Gaoyi Campus has already started the construction of the first and second phases of the project, and has obtained the planning permit for the third phase. As of September 2023, the first phase of the construction has laid a solid foundation for the initial operation of the campus, including the commissioning of the teaching building, dormitory building and canteen, and the second phase of the project, including the use of two dormitory buildings, which has further enhanced the carrying capacity of the school. It is expected that the third phase of the construction plan will further improve the infrastructure of the campus to meet the needs of more students. Looking forward to the future, the new campus in Gaoyi has a huge incremental space, with the completion of each phase of the construction project and the continuous improvement of education quality, the school will be further expanded, able to accommodate more students, and provide more space for the company's future income increase.

With the new campus of Shijiazhuang Polytechnic Vocational College gradually realizing its growth potential, education in the 21st century is entering a period of development dividends. The general bank has given an optimistic outlook for 21st century education. Guosheng Securities Research Institute expects the company to achieve continuous growth in operating income and net profit attributable to the parent company from 2024 to 2026. In particular, the commissioning of the new campus in 2023 will lead to an increase in operating costs in the short term, but as the new campus gradually fills up, the gross profit margin is expected to recover, bringing a considerable net profit growth.

Guosheng predicts that the company's operating income will increase from 531 million yuan in 2024 to 656 million yuan in 2026, and the net profit attributable to the parent company is expected to increase from 53 million yuan in 2024 to 97 million yuan in 2026, with a compound annual growth rate of 33.5%. At the same time, EPS (earnings per share) is expected to increase from 0.05 yuan in 2024 to 0.08 yuan in 2026, and ROE (return on equity) is also expected to increase significantly, from 6.4% in 2024 to 9.5% in 2026.

For a long time, as a stock target, the education group has the advantage of strong predictability of performance. Its source of income is relatively stable, mainly relying on tuition fees, accommodation fees, and related education service fees. These fees are usually charged at the beginning of each semester or academic year. In addition, the construction of the new campus and the progress of enrollment are highly visible, the increase in the number of students and the expansion of educational services are expected, and the possibility of steady growth in income is very strong. From this point of view, education in the 21st century has a high degree of growth and certainty.

Based on the closing price of 0.186 yuan on April 29, the PE is only 3.72x for EPS in 2024, which is very sufficient from this point of view. If you look at cash, you will come to a similar conclusion. According to the financial report, as of December 31, 2023, 21st Century Education Group's cash and bank balances were 270 million yuan. When cash is significantly higher than market capitalization, this can be a significant undervalued signal.

From an investment point of view, 21st Century Education Group not only shows solid profitability, but also reveals great growth potential, in addition, its low PE value and sufficient cash reserves provide investors with a large margin of safety. With the further improvement of the quality of education and the full operation of the new campus in the future, 21st Century Education Group is expected to usher in a better future and bring more long-term returns to investors.