17 Education & Technology Group Inc.

YQ Details

Q4FY20 Results Update: 17 Education & Technology Group Inc. (NASDAQ: YQ) is an education technology company. The market capitalization of the company as on 25 March 2021, stood at ~$1.50 billion. The company has reported impressive financial performance during the period with an increase of 153.1% in net revenues to $74.6 million, compared to the previous corresponding period. The net revenues from online K-12 tutoring services were at $71.6 million, representing an increase of 163.5% on the pcp. There was also a significant improvement in the paid course enrolment to ~849,000 in Q4FY20, compared to ~320,000 during the prior corresponding period. The gross margin of the company saw an increase to 64.3% during the period. It reported a net loss of $55.9 million. It ended the quarter with a cash position of $434.47 million as of 31 December 2020.

Q4FY20 Financial Performance (Source: Company Reports)

YQ reported revenue of $198.4 million in FY20, reflecting an increase of 218.6% on FY19. It reported a net loss of $205.3 million during the period.

Outlook: The company expects its revenue for Q1FY21 to be between RMB 458 million and RMB 470 million. The company had 340 instructors as of 31 December 2020, and the dedicated and full-time tutors stood at 3,402 during the same period end.

Key Risks: The company is a technology-enabled business and has to keep itself updated in order to remain relevant with the latest trends in the technological space.  

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

** 1 CNY = ~0.15 USD

Stock Recommendation: The company has no debt on its balance sheet as of 31 December 2020. The stock of YQ is trading close to its 52-weeks’ low levels $7.20. The stock of YQ gave a negative return of ~43.07% in the past three months and a negative return of ~21.73% in the past one week. On a technical analysis front, the stock of YQ has a support level of ~$7.23 and a resistance level of ~$8.61. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe the company can trade at a slight premium to its peer average EV/Sales (NTM Trading multiple), considering the robust financial performance and comfortable cash position. For the purpose, have taken peers such as Bright Scholar Education Holdings Ltd (NYSE: BEDU), New Oriental Education & Technology Group Inc (NYSE: EDU), Arco Platform Ltd (NASDAQ: ARCE), to name a few. Considering the expected upside in valuation and current trading levels, decent financial performance, absence of debt on balance sheet and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $7.85, up by 0.38% as on March 25, 2021.

YQ Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Resonant Inc.

RESN Details

Q4FY20 Update: Resonant Inc. (NASDAQ: RESN) is a provider of radio frequency filter solutions. The market capitalization of the company as on 25 March 2021, stood at ~$253.10 million. The company has delivered revenue of $0.6 million during the period, which is an increase of ~32% on the previous corresponding period. The research and development expenses decreased by ~9% to $4.8 million during the same period under consideration. There was an improvement in the net loss of the company to $7.1 million in Q4FY20, compared to a net loss of $7.8 million on the pcp. It had a cash position of ~$25 million as of 31 December 2020.

RESN has reported an impressive increase in revenues by over 330% in FY20 to $3.2 million, compared to FY19, reflecting increased traction of its technology within the smartphone, Wi-Fi and the automotive markets. 

Q4FY20 Financial Performance (Source: Company Reports)

Outlook: The company expects revenue in the first quarter of FY21 to be in-line with revenues in Q4FY20. It anticipates revenue for the full year to be significantly more than that of FY20.

Stock Recommendation: The stock of RESN is trading below its average 52-weeks’ levels of $8.33-$1.24. The stock of RESN gave a positive return of ~73.25% in the past three months and a negative return of ~25.08% in the past one month. On a technical analysis front, the stock of RESN has a support level of ~$3.93 and a resistance level of ~$4.94. On a TTM basis, the stock of RESN is trading at a price to book multiple of 9.9x, higher than the industry median (Software & IT Services) of 4.4x. Considering the valuation on TTM basis, volatile price movements in the past few months and the key risks associated with the business, we are of the view that most of the positive factors of the company have been discounted at current trading levels. Hence, we suggest investors to wait for a better entry-level and give an ‘Expensive’ rating on the stock at the current market price of $4.21, up by 2.93% as on March 25, 2021.

RESN Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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