FENBI, with AI wings attached, doubled its profits, is its performance on track?

On July 26, FENBI (02469.HK), known as the "first stock of Internet vocational education", saw its stock price surge significantly, closing up 9.09% at HKD 2.76. On July 25, FENBI announced good news, expecting revenue in the first half of 2024 to be no less than RMB 1.61 billion; net profit is expected to be no less than RMB 255 million, a year-on-year increase of no less than 212.9%; and adjusted net profit is expected to be no less than RMB 327 million, a year-on-year increase of no less than 13.5%. Regarding the growth in performance, FENBI stated that it is mainly due to the comprehensive impact of the following factors: (1) Benefiting from the firm and long-term investment in technology, the leading application of online technologies such as artificial intelligence in teacher instruction and course products within the group has increasingly demonstrated the efficiency advantage of teacher utilization, leading to a continuous increase in average teacher income contribution; (2) Technological empowerment further enhances operational efficiency, with employee costs decreasing compared to the same period last year. It is expected that the overall gross profit margin and net profit margin by the first half of 2024 will increase compared to the same period last year; (3) Share-based payment expenses recognized based on different service periods have decreased. Data shows that FENBI separated from Yuanfudao in 2020, and the company itself has a strong Internet gene, known as the "first stock of Internet vocational education". Its main business is to provide students with a full set of training courses for civil service exams, public institution exams, and qualification exams. The company's revenue mainly consists of two parts: online training/offline training and book sales. The training business contributes the majority of the revenue, accounting for over 80% of the company's revenue. For a long time, obtaining a civil service position has been seen as a desirable goal by many young people, with many joking that "the end of the universe is taking civil service exams". Against this backdrop, the number of people preparing for civil service exams continues to reach new highs, providing ample room for the long-term development of companies like FENBI that provide civil service exam training. It is worth noting that as a leading technology education company, FENBI has been committed to driving educational innovation with artificial intelligence. Since 2024, FENBI's large models and related technologies have been increasingly applied in the field of education. On July 12, FENBI officially launched its first large model focusing on the vocational education industry and announced that "FENBI AI Teacher" would go live on August 1. According to official information, based on extensive teaching data and RAG (Retrieval-Augmented Generation) technology, FENBI AI Teacher can provide more targeted services to students in areas such as "course structure", "common mistakes", "exam questions and answers", and "review sections" FENBI founder and CEO Zhang Xiaolong stated in a previous media interview that in the field of education, whoever can organically combine good content with advanced technology will have more opportunities. In the performance pre-announcement for the first half of the year, FENBI emphasized that under the empowerment of AI, overall teacher efficiency has significantly improved, costs have decreased significantly, leading to an improvement in the company's profitability. Looking ahead, a research report from Cinda Securities pointed out that FENBI's interim performance met expectations. Excluding the impact of the off-season for institutional exams, it is estimated that revenue will increase slightly. With the empowerment of technology and AI, teacher utilization efficiency and average teacher income continue to rise, leading to a significant improvement in profitability. From an industry perspective, the bank believes that demand remains strong, the speed of clearance of small and medium-sized institutions on the supply side may be slightly lower than the bank's expectations, but the future is still expected to show a trend of concentration among leading players