Newsletter summary

Guangzheng Education (06068) medium-term performance declined, revenue decreased by 29% compared with the same period last year.Coinnftgame.7%, the profit of shareholders decreased by 14.2%, and the share price fell by 27.1%. The two major businesses have shrunk across the board, and the road to transformation is fraught with challenges. Independent high school business is the key, but the financial pressure can not be ignored.

Text of news flash

[Guangzheng Education's financial performance continues to decline]

On April 26th, Guangzheng Education released its interim results for the six months ended February 29, 2024. Its operating income was 79.663 million yuan, a decrease of 29.7% over the same period last year.CoinnftgameThe profit attributable to shareholders was 47.174 million yuan, down 14.2% from the same period last year. The decline in this performance directly led to investors' dissatisfaction with the company, and the share price fell more than 22% after reporting the results. As of April 29, the price per share was HK $0.226, down 27.1%, with a turnover of HK $3.0868 million.

The two main businesses of Guangzheng Education-- school-related supply chain business and comprehensive education services-- are facing a full range of contraction. School supply chain business revenue decreased by 15.1% compared with the same period last year, and comprehensive education service revenue decreased by 47.5% compared with the same period last year.

Since the 2021 fiscal year, the revenue of Guangzheng Education has been declining year by year. From 2022 to the middle of the 2024 fiscal year, the revenue was 116 million yuan, 113 million yuan and 80 million yuan respectively, and the net profit also dropped from 55 million yuan to 47 million yuan.

Although Guangzheng Education has formulated three development paths, including comprehensive quality education services for students, supply chain business and the spin-off of some schools as independent entities, it seems that the road of expansion to the ToB field is not smooth.

Independent high school business has become the key to the turnaround of Guangzheng education. In August 2023, the company acquired control of Zhongshan Wenrui through its subsidiary Dongguan Ruixing Business Service Co., Ltd., which plans to establish and operate a new high school and kindergarten in Zhongshan City. However, independent high school is an asset-heavy industry, and the financial situation of the company is not optimistic.

Guangzheng Education's asset-liability ratio is as high as 60.21%, and the capital-liability ratio is 52.6%. The company has accumulated serious liabilities, and cash and cash equivalents have been reduced by nearly half to only 130 million yuan. Without the support of advance tuition fees collected by K12 schools in the future, the transformation of Guangzheng education will face severe challenges.