Sinolink: Improved policy margins promote the acceleration of K12 network expansion.

Sinolink released a research report stating that in the first half of 2024, the operating income of the education/human services/exhibition industry increased by +3.8%/+15.2%/-7.5% compared to the first half of 2023, and the net profit attributable to the parent increased by +225.5%/+1.7%/-54.3% compared to the first half of 2023, showing the essential demand characteristics of the education industry and the counter-cyclical attributes of flexible employment. This year, the favorable policies for non-discipline quality education and training are gradually becoming clearer, and the policies are reaching a turning point. Beijing and Guangzhou have successively issued licenses for non-discipline extracurricular training institutions to "approve as many as possible," promoting the expansion of K12 institutions. Looking ahead to the second half of the year, the education sector is more optimistic about the K12 and exam preparation training sectors leading the social services industry performance, and it is also recommended to focus on dividend-paying sectors with high dividends. Sinolink's main points are as follows: Education: Strong demand for training, favorable marginal policies K12: Favorable policies, strong demand for non-discipline training. This year, the favorable policies for non-discipline quality education and training are gradually becoming clearer, and the policies are reaching a turning point. Beijing and Guangzhou have successively issued licenses for non-discipline extracurricular training institutions to "approve as many as possible," promoting the rapid expansion of K12 institutions. Among the selected 7 listed companies, 5 companies saw positive year-on-year growth in revenue, and all 7 saw positive year-on-year growth in net profit/attributable net profit. It is expected that the strong demand for training will continue, and the leading companies are expected to continue to expand rapidly. Exam Preparation Training: Strong demand for training, early impact of public sector exam. The employment situation for young people in China is quite severe, and there is a strong willingness to participate in recruitment exams and secure stable job positions. The number of applicants for the 2024 national and provincial exams hit a new high, indicating strong demand for exam preparation training. However, this year, the timing of the public sector exams was slightly earlier, leading to a compression of revenue for public sector exam training with a year-on-year growth rate of -9.7%. Offcn Education Technology continues to optimize its organizational structure, optimize its institutions, focus on improving profitability, and the integration of FENBIOMO course with Wuxi Online Offline Communication Information Technology Co., Ltd. gradually reduces the need for fixed venues, and AI-enhanced teaching improves efficiency, collectively driving improved profitability and positive performance growth in the sector. Enterprise Management Training: High growth driven by strategic large customers, strong dividend attributes. The strategic focus on large customers continues, with Shanghai Action Education Technology partnering with Langjiu, King's Luck Brewery, Absen Optoelectronic, Youfa Steel Pipe, Innovation Metal, and Mars-Kitchen integrated stoves, among others. In the first half of 2024, revenue reached 3.89 billion yuan, up +35.2% year-on-year, and net profit/attributable net profit increased by +29.2%/+38.8%, respectively. The interim cash dividend proposed for the first half of 2024 is 118 million yuan (tax-inclusive), with a dividend payout ratio of 86.7%. As of the close on September 6, the dividend yield (TTM) is 6.3%. Human Resources Services: High demand for flexible employment, recruitment sector still in need of recovery In the first half of 2024, Beijing Career International dispatched a total of 234,400 temporary workers; by the end of June 2024, there were over 38,700 temporary workers in the flexible employment business, an increase of 18.3% year-on-year. Beijing Career International achieved a revenue of 5.54 billion yuan in the first half of 2024, up 16.6% year-on-year, with the revenue from flexible employment/mid-to-high-end talent search/recruitment process outsourcing increasing by +18.7%/-15.4%/-16.8% year-on-year respectively. The business outsourcing services of Shanghai Foreign Service Holding Group increased by 17.2% year-on-year. Overall, the human services sector's strong demand for flexible employment is driving revenue growth, while the recruitment sector is still in need of recovery. There is a divergence in the performance of individual stocks, with companies with lower revenue from recruitment sector showing better performance. Exhibitions: Expecting strong revenue and performance elasticity in the second half of the year Changes in exhibition schedules led to a decline in external exhibition revenue and pressure on performance. Zhejiang Meorient Commerce & Exhibition Inc. saw a year-on-year decline of -26.4% in revenue in the first half of 2024, with net profit/attribution net profit decreasing by -57.4%/-15.5%, respectively. The main reason for this was the changes in exhibition schedules. It is expected that the second half of the year will see a peak season for external exhibition revenue confirmation, with good revenue and performance elasticity. Risk Warning: Impact of macroeconomic downturn; risk of insufficient increase in students' enrollment and tuition fee adjustments in the education industry; risk of long-term decline in birth rate; risk of decline in recruitment demand in the human services industry; impact of slower than expected growth in the number of dispatched employees in the human services industry; risk of increasing exhibition booth sales and booth price pressure in the exhibition industry.