Zhejiang Securities released a research report stating that the just-needed attribute of the K12 education sector is prominent, with leading companies expanding and increasing market share, and the industry maintaining a high level of prosperity. A mid- to long-term perspective of the speed of opening new stores is more important than the marginal changes in short-term profit rates, but whether short-term profit/profitability can meet market expectations may determine the current stock price trend. We continue to recommend New Oriental (09901) and Xueda Education (000526.SZ), which have relatively formed support after a decline, and recommend paying attention to Kaiwen Education (002659.SZ).

Zheshang Securities' main points of view are as follows:

K12: Production capacity expansion speeds up, leading companies increase their market share, and summer is highly prosperous.

1. Head K12 companies continue to expand their production capacity at an accelerating rate and maintain market share expansion. 1) National: In June, the number of new stores opened by New Oriental/TAL Education Group rose by 17.2%/26.2% respectively, which is higher than the 11.4% increase in the number of non-subject teaching licenses from January to June. 2) Regional: Taking Scholar Edu as an example, there were more than 150 stores before the double declination, and now only the Shenzhen store has exceeded 120.

2. K12 summer prosperity continues, but attention should be paid to whether the growth rate of enrollment matches the speed of capacity expansion. 1) Offline: Combined with the estimated opening expansion and store climbing speeds, it is estimated that New Oriental and TAL Education Group will have income growth rates of nearly 40% and 60% respectively from June to August (offline K9 non-subjects estimated high double-digit growth), and Xueda Education's income growth rate from April to June is about 28%, maintaining a relatively high level of prosperity. Among them, the growth of New Oriental and Xueda's training times matches the speed of capacity expansion. 2) Online: According to Douyin and Feigua data, Xueersi Online School's year-on-year growth in June is significant, and Gaotu Accumulated significant YoY growth from January to June, showing good growth in online customer acquisition and recruitment.

3. Investment advice: The current just-needed attribute of K12 education is prominent, leading companies expanding and increasing market share, and the industry maintaining a relatively high level of prosperity. A mid- to long-term perspective of the speed of opening new stores is more important than the marginal changes in short-term profit rates, but whether short-term profit/profitability can meet market expectations may determine the current stock price trend. We continue to recommend New Oriental, Xueda Education, and recommend keeping an eye on TAL Education, Kaiwen Education, Scholar Edu, Beststudy Edu, Only Education, Suzhou Kingswood Education Technology, Beijing Shengtong Printing, and Doushen Education.

Public examinations & vocational education: Mild growth in demand for public examinations, vocational education still under pressure from macro environment.

1. Overall demand for public examinations is growing moderately, and leading companies seek healthy and stable development: The number of applicants for the national/provincial examinations in 2024 is expected to increase by +13%/158% YoY, respectively (the actual growth rate may differ from the statistical data). With the release of market share and famous teachers by leading companies in 2021, small and medium-sized institutions have emerged rapidly. In addition to traditional offline regional brands, they are also common on TikTok, Xiaohongshu, WeChat video accounts and other channels. Under the situation of market diversification and marginal decrease in customer payment level, leading companies seek to improve their product strength and reduce business leverage, and seek stable growth/profitability rather than fast profits.

2. The trillion-dollar training market: Large customers strategy of action education, focusing on resource advantages to seek more stable repeat customers and steady growth, to hedge the decline in payment ability and willingness of small and medium-sized enterprises. However, large customers may make payments according to the amount of the contract, which may lead to a gradual difference between the progress of actual receipts and the amount of the signed contract.

3. Other vocational education: Oriented to employment, the growth rate of enrollment is affected by the employment rate, and the income side is expected to still be under pressure from the macro environment. Pay attention to the turning point changes of individual stocks.

4. Investment advice: We recommend Action Education (which is in a critical period of transformation of the large customer strategy and has steady growth in contract liabilities, and recommend paying attention to the monthly growth of new orders and whether H2 receipts are picking up) and China East Education (if the steady growth and profitability adjustment effect can be implemented in place, it may usher in a valuation repair under a high dividend positioning).