CITIC Securities International: 51Talk AI innovation releases growth potential, valuation is very attractive

According to the Zhitong Finance APP, China Merchants Securities International released a research report stating that 51Talk (COE.US) is a rising star in the vast English training market, currently holding a market share of approximately 0.5% (according to third-party reports, the total potential market size in non-China regions is about $16.9 billion). Its rapid growth is driven by market expansion and AI innovation. Currently, 51Talk's forward price-to-sales ratio before 2026 is 1.6 times, lower than the industry average of 2.0 times, with a price-to-sales growth (PSG) of 0.03 times (based on a 57% compound annual growth rate in revenue from 2025-2027 market consensus), significantly lower than the industry average of 0.1 times. The firm believes the valuation is very attractive. Key points from China Merchants Securities International are as follows: Replicating China's successful experience overseas, with an excellent growth trajectory 51Talk is a global leading one-on-one online English education platform targeting K12 students, founded in 2011 and listed in 2016. Due to changes in China's regulatory policies, 51Talk strategically shifted its business focus to overseas markets and completely divested its mainland China operations, currently operating in Hong Kong, the Middle East and North Africa, and Southeast Asia. Before the "double reduction" policy, 51Talk's total cash revenue peaked at 2.7 billion RMB in 2020, with a net profit margin in the high single digits. The company is currently replicating its successful domestic operational experience in new overseas markets: the compound annual growth rate of total overseas revenue from 2022 to 2024 is expected to exceed 80%. AI and localized operations empower a bright future In the second quarter of 2025, total cash revenue was $28.5 million, a year-on-year increase of 79%, with the number of active students growing by 68% year-on-year to reach 91,300. Group revenue was $20.4 million, a year-on-year increase of 86%, with a gross margin of 75%. The company guides that total cash revenue in the third quarter of 2025 will increase by 85-90% year-on-year, with accelerated growth quarter-on-quarter, driven by ongoing market expansion and penetration as well as brand promotion activities (such as the Riyadh promotional campaign). The firm believes that two key driving factors will continue to support its rapid and sustainable growth: 1) AI enhances efficiency: including content/marketing material development, AI teachers, AI tools for teacher recruitment and training, AI free trial classes, real-time translation, and teacher-student operational management. 2) Localized operations: 51Talk has established local offices in multiple regions and customized course packages to meet personalized needs, while launching localized marketing content and offline activities to enhance brand awareness and user engagement