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Sharp education's net profit in the fourth quarter dropped 41.9% year on year by US $6.7 million

On November 14, elite education of k12 education brand released the report of the fourth quarter of fiscal year 2019 and the whole fiscal year 2019 as of August 31, 2019. According to the data, the net income of elite education in the fourth fiscal quarter was 1.311 billion yuan (about 183 million US dollars), up 40.4% year on year; the net profit attributable to elite education was 48 million yuan (about 6.7 million US dollars), down 41.9% year on year.

Financial summary for the fourth quarter ended August 31, 2019

Net income increased by 40.4% year-on-year to RMB 1.311 billion (US $183.3 million)

Net income of elite & middot; personalized (onesmart VIP) business increased by 34.8% year on year to rmb1047.3 million (US $146.4 million)

Net income from elite & middot; to happy math increased 38.0% year-on-year to RMB 161.8 million (US $22.6 million)

Net income of FastTrack English increased by 109.9% year on year to 75.5 million yuan (US $10.6 million)

The monthly average enrollment increased by 29.5% over the same period last year to 158649, among which the monthly average enrollment of onesmart VIP business, happymath and Fastrack English increased by 14.1%, 17.6% and 58.7% respectively over the previous fiscal year.

As of August 31, 2019, the number of learning centers has increased to 432, including 275 onesmart VIP learning centers, 95 happymath learning centers, 51 Fastrack English learning centers and 11 Tianjin Huaying learning centers.

Financial Highlights for the year ended August 31, 2019

Net income increased by 39.5% year on year to rmb3993.9 million (US $558.2 million)

The net income of elite & middot; personalized business increased by 31.1% year-on-year to RMB 3.167.5 billion (US $442.7 million)

Net income from elite & middot; to huixuetang increased by 43.2% year on year to RMB 512.2 million (US $71.9 million)

Net income of little earth children's English increased by 163.7% year on year to RMB 192.4 million (US $26.9 million)

Financial performance analysis for the fourth fiscal quarter ended August 31, 2019

net income

Net income was 1.311 billion yuan ($183.3 million), up 40.4% from 933.6 million yuan in the same period last year. The increase is mainly due to an increase in the average monthly enrolment, higher utilization and higher unit prices. The monthly average enrollment was 158649, up 29.5% year on year.

Operating costs and expenses

Operating costs and expenses for the quarter were 1.234 billion yuan ($172.6 million), up 50.1% from 822.6 million yuan in the same period last year. Non GAAP operating costs and expenses (excluding share based compensation) were rmb1209.2 million (US $169.0 million), up 51.9% from rmb795.8 million in the same period last year.

Revenue and cost increased 44.6% year on year to RMB 667.1 million (US $93.2 million). The main reason is the increase of teacher compensation to attract more experienced teachers, and the increase of rent cost to support the relocation of some learning centers to meet the requirements of laws and regulations.

Sales and marketing expenses were 259.9 million yuan (US $36.3 million), an increase of 34.1% year on year. Non GAAP selling and marketing expenses (excluding equity incentive expenses) were rmb259.9 million (US $36.3 million), up 34.4% from rmb193.5 million in the same period last year. The increase is due to sales and marketing activities to support the growth of new student enrollment, as well as the adoption of more effective sales and marketing channels;

The management fee was 307.7 million yuan (US $43 million), an increase of 83.7% over the same period last year. Non GAAP management fees (excluding equity incentive fees) were rmb282.1 million (US $39.4 million), up 100.0% from rmb141.1 million in the same period last year. The main reason for the growth is the growth in research and development of educational technology, teaching systems and course materials related to advanced offline business and new online business. In order to comply with the new regulatory standards, we have also incurred a considerable amount of general and administrative expenses to support the opening of the learning center.

In the fourth quarter of 2019, share based compensation expenses totaled 25.6 million yuan ($3.6 million), compared with 26.7 million yuan in the same period of the previous fiscal year, which was allocated to related operating expenses.

Operating revenue and operating profit margin

Operating revenue for the quarter was 76.4 million yuan ($10.7 million), down 31.2% from 110 million yuan in the same period of the previous fiscal year. Non GAAP operating income (excluding share based compensation) was rmb120.2 million (US $14.3 million), down 26.0% from rmb137.7 million in the same period of the previous financial year. The main reasons for the decrease are sales and marketing expenses and general management expenses in line with the new regulations and standards, investment in research and development of new products, and increased expenses for the opening of the support center.

The operating profit margin for the quarter was 5.8%, compared with 11.9% for the same period in the previous financial year. Non GAAP operating profit margin was 7.8%, compared with 14.8% in the same period last year. If the financial impact of the new centre opened in the past 12 months is not included, the non GAAP operating margin for the quarter will be 11.4%.

Other income

Mainly government subsidies and other income, 17 million yuan (US $2.4 million), compared with 15.5 million yuan in the same period last year.

Income tax expense was 31 million yuan ($4.3 million), compared with 43.9 million yuan in the same period last year.

Net profit attributable to elite education

The net profit attributable to elite education was 48 million yuan (US $6.7 million), compared with 82.6 million yuan in the same period last year. Non GAAP net income attributable to elite education was 73.6 million yuan ($10.3 million), compared with 109.3 million yuan in the same period last year. The decrease was mainly due to an increase in the balance of bank borrowings, sales and marketing expenses, general and administrative expenses and interest expenses.

capital expenditure

The capital expenditure in the fourth quarter of 2019 was 76.2 million yuan (US $10.6 million), an increase of 11.2 million yuan compared with 65 million yuan in the fourth quarter of 2018, mainly due to the improvement of rental fees paid.

Financial situation

As of August 31, 2019, the company has cash and cash equivalents of RMB 1377.4 million (US $192.5 million) and short-term investment of RMB 454.4 million (US $63.5 million).

Cash turnover

Net cash generated from operating activities in the fourth quarter of fy19f was rmb155.2 million (US $21.7 million).

Net cash used in investing activities in the fourth quarter of fy19f was rmb51 million (US $7.1 million).

Net cash used in financing activities in the fourth quarter of fy19f was rmb93.5 million (US $13.1 million).

Fy2020 outlook

According to current estimates, net income in fy2020 is expected to be between rmb4992.3 million ($697.8 million) and rmb5.120 billion ($725.7 million), an increase of 25% to 30% over fy2019.