Sunlands Technology Group (NYSE: STG), a leader in China's adult education market, has reported its fourth-quarter and full-year financial results for 2023. The company announced a net profit of RMB155.2 million for the fourth quarter, with a net profit margin of 28.6%. Revenue for the quarter was RMB542 million, a 3.3% increase from the previous quarter, and a 6.4% decrease year-over-year.
For the full year, Sunlands achieved a revenue of RMB2.16 billion and a net income of RMB614.8 million. The company also highlighted a 15.4% increase in enrollment year-over-year, emphasizing the growing demand for its educational offerings. The financial controller, Hangyu Li, provided a detailed account of the financials and the company's outlook for the first quarter of 2024, expecting net revenues to be between RMB500 million and RMB520 million.
Key Takeaways
- Sunlands reported a Q4 net profit of RMB155.2 million with a 28.6% net profit margin.
- Q4 revenue increased by 3.3% from the previous quarter to RMB542 million but decreased by 6.4% year-over-year.
- Full-year revenue reached RMB2.16 billion with a net income of RMB614.8 million.
- Enrollment grew by 15.4% year-over-year, indicating strong demand for Sunlands' courses.
- Interest-based courses saw a 54.9% year-over-year growth, contributing significantly to revenue.
- The company's financial management resulted in a net cash inflow from operating activities of over RMB135 million.
- A share repurchase program has been executed, with approximately 420,000 ordinary shares repurchased for a total investment of $15.7 million.
Company Outlook
- Sunlands expects Q1 2024 net revenues to be between RMB500 million and RMB520 million, a decrease of 8.3% to 11.8% year-over-year.
Bearish Highlights
- The company experienced a 6.4% decrease in year-over-year revenue for Q4.
- There was a decline in gross billings from post-secondary courses in 2023.
Bullish Highlights
- The company maintained a net profit margin above 20% since Q4 2021.
- Interest-based courses and professional certifications continue to be key growth drivers.
Misses
- Q4 net income was RMB155.2 million, down from RMB181 million in the same period of the previous year.
- Operating expenses in Q4 increased by 3.8% year-over-year.
Q&A Highlights
- No new questions were presented during the Q&A session of the earnings call.
Sunlands' CEO, Tongbo Liu, and Financial Controller, Hangyu Li, led the earnings call, which concluded without any further questions from participants. The company's focus on interest-based courses, professional certifications, and the burgeoning elderly education market demonstrates its strategic positioning to cater to the evolving demands of adult learners in China. Despite the overall decline in post-secondary course billings, Sunlands remains optimistic about its growth prospects, particularly in the interest-based education sector, which has seen significant growth and user engagement. The company continues to emphasize its commitment to shareholder value through strategic share repurchases and operational efficiency.
InvestingPro Insights
Sunlands Technology Group's latest financial results paint a picture of a company with a solid footing in the adult education market, yet facing challenges in revenue growth. To provide a deeper understanding of the company's financial health and stock potential, let's look at some key metrics and InvestingPro Tips.
InvestingPro Data reveals a market capitalization of 132.67 million USD, indicating that while Sunlands is not among the largest companies by market value, it has a presence worth noting in the education sector. A standout figure is the company's P/E Ratio, which at 1.45 is remarkably low, suggesting that the stock could be undervalued relative to its earnings. This is further supported by the adjusted P/E ratio for the last twelve months as of Q3 2023, which sits at a similar level of 1.44.
The gross profit margin for the same period is an impressive 87.84%, showcasing Sunlands' ability to maintain profitability despite revenue fluctuations. This aligns with one of the InvestingPro Tips highlighting the company's impressive gross profit margins. Another tip worth noting is that Sunlands holds more cash than debt on its balance sheet, which is a positive sign of financial stability and may provide a cushion against market uncertainties.
Investors looking for additional insights will find more valuable InvestingPro Tips for Sunlands, such as trading at a low revenue valuation multiple and a strong return over the last three months. In fact, there are 13 additional tips available on InvestingPro, which can be accessed at https://www.investing.com/pro/STG. For those interested in a deeper dive into the company's potential, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
The data and tips provided offer a nuanced view of Sunlands, complementing the article's discussion of the company's financial performance and future outlook. With a mix of low valuation multiples and a strong gross profit margin, investors might see a potential opportunity in Sunlands' stock, even amidst the challenges in revenue growth and course billings.
Full transcript - Sunlands Online Education Group (NYSE:STG) Q4 2023:
Operator: Ladies and gentlemen, thank you for standing by, and welcome to Sunlands Fourth Quarter and Full Year 2023 Earnings Conference Call. At this time, all participants are in listen-only mode. Today's conference call is being recorded. I will now turn the call over to your host today, Yuhua from Sunlands IR Representative. Please go ahead.
Yuhua Ye: Hello, everyone, and thank you for joining Sunlands Fourth Quarter and Full Year 2023 Earnings Conference Call. The company's financial and operating results were issued in our press release via Newswire services earlier today and are posted online. You could download the earnings press release and sign up for our distribution list by visiting our IR website. Participants on today's call will be our CEO, Mr. Tongbo Liu; and our Financial Controller, Mr. Hangyu Li. Management will begin with prepared remarks, and the call will conclude with a Q&A session. Before I hand it over to the management, I'd like to remind you of Sunlands' safe harbor statement in relation to today's call. Except for the historical information contained herein, certain of the matters discussed in this conference call are forward-looking statements. These statements are based on current trends, estimates and projections, and therefore you should not place undue reliance on them. Forward-looking statements involve inherent risks and uncertainties. A number of important factors will cause actual results to differ materially from those contained in any forward-looking statements. For more information about the potential risks and uncertainties, please refer to the company's filings with the Securities and Exchange Commission. With that, I will now turn the call over to our CEO, Tongbo Liu.
Tongbo Liu: Thank you, Yuhua. Hello, everyone. Welcome to Sunlands fourth quarter and full year 2023 earnings conference call. Prior to commencing, I would like to kind of remind all attendees that the financial information referenced in this release is presented on a continuing operations basis and all figures are denominated in RMB unless explicitly specified otherwise. It is with great pride that we unveiled the successful conclusion of the fourth quarter, characterized by a noteworthy net profit of RMB155.2 million and an impressive net profit margin of 28.6%. These metrics underscore our firm financial foundation and a steadfast dedication to the operational excellence. In the meanwhile, our revenue stands at RMB542 million, marking a 3.3% increase from the previous quarter and surpassing our earlier forecast despite the year-over-year revenue decrease of 6.4%. Reflecting on the entire fiscal year, we successfully recorded an annual revenue of RMB2.16 billion and a net income of RMB614.8 million. Additionally, we observed a significant 15.4% increase in enrollment year-over-year, highlighting the growing demand for our offerings. Our prudent financial management resulted in a net cash inflow from operating activities of over RMB135 million, being a solid financial foundation for our future growth initiatives. Throughout the year, we remained agile in responding to market dynamics and evolving user preferences, driving continuous innovation across our product and service portfolio. A pivotal driver has been the dynamic expansion of our interest-based courses, which experienced a 54.9% year-over-year growth. The sector has emerged as the important growth catalyst for the company, further solidifying our leading position in the adult education landscape. Turning to the performance of our major course programs, degree-oriented post-secondary programs accounted for 24.7% of our revenue in 2023. While we continue to optimize the sectors investment, we believe in its promising future, and current employment landscape, individuals navigating academic pursuits of professional trajectories find themselves confronted with intricate challenges. The symbiotic relationship between salary offerings and educational tenant has become more pronounced. This in turn has precipitated a surge in the productivity of individual towards pursuing further education. The sector encompassing professional certifications, skills and interest programs continue to serve as our key growth engine, showcasing a year-over-year revenue increase of 13.3% and contributing to 77.1% of our total revenue. In 2023, we observed a 21.1% rise in new student enrollments within the sector compared to 2022. Our approach to catering to the growing educational need of learners, course, various age group has been particularly rewarding. Moreover, the standout performance of interest-based education courses remained in foremost highlights of this sector, accounting for 63% of our total revenue and experiencing a significant 54.9% year-over-year revenue growth. In 2023, the user search volume for adult interest training has surged, ranking first among the new business segments in the education sector. This trend signifies a growing focus among adults on inner willing and personal interests, thereby resulting in a discernible concurrent elevation in the demand for associated knowledge and services. Compared to our degree program users who tend to be younger and more career oriented, the age range of users in interest sector is much broader with a significant portion of the user base comprising middle-aged and elderly population. After several quarters of practical exploration, we have gained a deeper understanding of the elderly learning market. And today, I am delighted to share some insights. Firstly, the expansive nature of China's senior demographic presents a [indiscernible] landscape for market penetration. As of 2022, China confronted a rare phenomenon of net population decrease. This marks the first negative growth since the 1916s, signifying the onset of a period of population decline. Additionally, the impending retirement phase of China's second baby boom generation, expanding births from 1962 to 1975, introduces a cohort of wildly significant socioeconomic influence. According to China Private Wealth Report released by China Merchants Bank and Bayon in 2023, the age group of 15 to 59 accounts for 20% of the high net worth individuals with investable assets of over RMB10 million. In the past, senior education was predominantly supplied by the governmental agencies. However, today's newly retired individuals have the autonomy to select from market-oriented educational institutions and are willing to pay premium prices for such offerings. Secondly, the last preference and demand is exhibited by elderly cohorts across various age brackets underscore the complexity of this demographic, indicating significant untapped potential. Individuals aged 15 to 59 display a vibrant demeanor with a predilection towards cultural and spiritual pursuits such as travel and lifelong learning endeavors. Conversely, those aged 16 and above tend to gravitate towards health-centered consumption patterns, embracing nutritional supplements and care services. Upon meticulous scrutiny of our senior course in [indiscernible], taking our traditional Chinese printing program as an example, individuals aged 14 to 65 come for 16%, with over 16% being female and 20% from first tier cities. We define them as a new generation of vibrant seniors, characterized by high cultural refinement, relative affluence, appellation opportunities, and a higher pursuit of spiritual enrichment. Our products are well received by this Golden Age Group and we will continue to see the demands of this demographic to expand this go power services in the future. Drawing inspiration from the developmental trajectory of Japan's elder industry, notably illustrated by club tourism, Japan's leading senior travel conglomerate with a membership base of 7 million, which initially focused on travel products and later expanded horizontally into nursing, insurance, and consumer goods. We aim to maximize our lifetime values through diversified offerings and high-value populations rooted in effective senior interest education services. For instance, we have launched educational travel packages, integrating courses with tourism activities. These ongoing and innovative initiatives afford us a swifter and more profound insight into our user base, including our imagination for future possibilities. We also note the government's attention to and emphasis on the elderly industry. On January 15, 2024, the General Office of the State Council of China issued the first dedicated document supporting the development of the silver economy, which specifically mentioned enriching elderly education services. We will continue to increase investment in course development for this burgeoning demographic. We have curated a range of specified offerings, including framing Chinese painting and music courses, supplemented by a variety of offline events tailored to diverse situational contexts. Notably, our senior brand the prestigious [Crofts Brand Service Award] (ph) from People's Daily Online, a testament to our unwavering pursuit of excellence. As we progress into 2024, we remain committed to constantly exploring and refining our product mix, targeting different age groups, while developing our operational efficiency improvement efforts to support our long-term sustainable growth. Since our initial public offerings, the company has been constantly progressing with stock repurchases. As of December 31, 2023, under the share repurchase plans adopted in December 2021 and August 2018, we have successfully executed the repurchase of American depository shares equivalent to approximately 420,000 ordinary shares, representing a total investment of $15.7 million. Looking ahead, we pledged to fortify shareholder value through ongoing share repurchases, underscoring our steadfast commitment to shareholder interest. With that, I will turn the call over to our financial controller, Hangyu to run through our financials.
Hangyu Li: Thank you, Tongbo. Hello, everyone. I'm pleased to present our fourth quarter results. Over the past year, we have been committed to achieving sustainable growth, placing a high priority on improving operational efficiency and optimizing our cost structure. We continued our impressive level of profitability with a net profit margin of 28.6%, up 3.5 percentage points quarter over quarter. This demonstrated the effectiveness of our operational strategies and highlights our ability to adapt to changing market conditions. It is also important to highlight that our net cash inflows from operating activities for the year exceeded $135 million, providing a solid financial foundation for the sustainable development of our business. This success is a direct reflection of our commitment to strengthening our core competence, allowing us to quickly adjust our strategy in response to changing market conditions and customer demands. Notably, since the fourth quarter of 2021, our net profit margin has remained above 20%, which is a testament to the strength and resilience of our business model. Looking to the future, we'll continue to focus on refined operations and efficient office financial management to ensure the company sustains healthy and stable development. In addition, we'll strictly follow the instructions of the board and implement strategic share repurchases to enhance shareholder value. Now let me present to you some of our key financial results for the fourth quarter of 2023. All comparisons are year-over-year, and all figures are in RMB unless otherwise noted. For the fourth quarter of 2023, net revenues decreased by 6.4% to RMB541.7 million from RMB578.6 million in the fourth quarter of 2022. The decrease was primarily due to a year-over-year decline in gross buildings from post-secondary courses in 2023. Cost of revenues decreased by 2% to RMB73.8 million in the fourth quarter of 2023 from RMB75.3 million in the fourth quarter of 2022. The decrease was primarily due to lower compensation expenses related to a reduction in our cost of revenue headcount. Growth profit decreased by 7% to RMB468 million in the fourth quarter of 2023 from RMB503.3 million in the fourth quarter of 2022. In the fourth quarter of 2023, operating expenses were RMB348.9 million, representing a 3.8% increase from RMB336 million in the fourth quarter of 2023. Sales and marketing expenses increased by 12.2% to RMB305.8 in the fourth quarter of 2023 from $272.5 million in the fourth quarter of 2023. The increase was primarily due to increased spending on sales activities, including higher sales force compensation, as well as higher spending on brand and marketing activities focused on interest-based courses. General and administrative expenses decreased by 36.8% to RMB35.5 million in the fourth quarter of 2023 from RMB56.1 million in the fourth quarter of 2022, the decrease was primarily due to lower office costs and rental expenses resulting from the early termination of certain office spaces. Product development expenses increased by 3.6% to RMB7.6 million in the fourth quarter of 2023 from RMB7.4 million in the fourth quarter of 2022. Net income for the fourth quarter of 2023 was RMB155.2 million, compared with RMB181 million in the fourth quarter of 2022. Basic and diluted net income per share was RMB22.59 in the fourth quarter of 2023. As of December 31st, 2023, the company had RMB766.4 million of cash, cash equivalents and restricted cash and RMB142.1 million of short-term investments compared with RMB757.4 of cash, cash equivalents and restricted cash and RMB70.5 million of short-term investments as of December 31, 2022. As of December 31, 2023, the company had a deferred revenue balance of RMB1113.9 million compared with RMB1690.9 million as of December 31, 2022. Capital expenditures were primarily for information technology infrastructure equipment and leasehold improvements required to support the company's operations. Capital expenditures were RMB0.2 million in the fourth quarter of 2023, compared with RMB0.7 million in the fourth quarter of 2022. For more details on our full year 2023 financial results, please see our earnings press release. Now for our outlook, for the first quarter of 2024 we currently expect net revenues to be between RMB500 million and RMB520 million, a year-over-year decrease of 8.3% to 11.8%. This outlook is based on current market conditions and reflects the company's managements current and the preliminary estimates of the market, operating conditions and the customer demand, all of which are subject to change. With that, I'd like to open up the call to questions. Operator?
Operator: Thank you. [Operator Instructions] At this time we are showing no further questions. So this will conclude our question-and-answer session. At this time, I would like to turn the conference back over to Yuhua for any closing remarks.
Yuhua Ye: Once again, thank you everyone for joining today's call. We look forward to speaking with you again soon. Good day and good night.
Operator: This concludes today's conference call. You may now disconnect your line. Thank you.
End of Q&A:
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