The author is an analyst of NH Investment & Securities. She can be reached at jiyoony@nhqv.com. — Ed.
Megastudy Edu’s 4Q22 results missed consensus due to low seasonality and ad/promotion expenses for the elementary/middle school business. In 2023, the expansion of high school offline academies should offset the slowdown in online growth. Preparations to launch a new business (infant/toddler) in July are also underway.
Offline expansion to offset online slowdown
We lower our TP on Megastudy Edu from W120,000 to W100,000, as we cut 2023E OP by 13% to reflect content development costs for a new business (infant/toddler) and greater ad/promotional expenses stemming from intensifying competition at the elementary/middle school business.
Currently, overall online sales growth is slowing—estimated at +10% y-y for elementary school (Elihigh), +2~3% y-y for middle school (Mbest), and +5% y-y for high school (Mega Pass). However, the capacity of offline high school academies should not be overlooked. The firm opened Anseong boarding school (capacity: 400 students) this year, expanded Russell (+200 students) and Yangji (total 1,200 students) boarding schools, and plans to open new local Russell schools (7 added in 2022; additional 7 to open in 2023). Given such, sales at the high school division should continue to grow by more than 10% y-y, as the number of students increases significantly. We maintain a Buy rating as the current share price (W68,500 on Feb 15) is equivalent to a 2023E P/E of only 6.6x, which is oversold on concerns over slowing Mega Pass payments.
2023, a stepping stone for mid/long-term growth
We forecast consolidated 2023 sales of W941.7bn (+13% y-y) and OP of W166.2bn (+24% y-y), with sales growth (y-y) by division breaking down as 15% for elementary/middle school, 12% for high school, and 11% for adults. Cost execution is inevitable for new mid/long-term drivers (ie, public servant and infant/toddler businesses) and market share expansion at the elementary/ middle school business.
4Q22 review: Off-peak season has passed
The firm booked consolidated 4Q22 sales of W189.9bn (+9% y-y) and OP of W7.4bn (-3% y-y), missing consensus. Due to: 1) low seasonality; 2) increased TV/home shopping advertising for the elementary/middle school division; and 3) manpower reinforcement for new businesses and bonus payments, OPM slid 0.5%p y-y to 3.9%.
