It is hoped that the announcement has sold its stake in 300050 SZ to major shareholders.

We think the price of this transaction is fair and will increase the after-tax net income of 10 million yuan for hope education.

Maintain buy rating: we think this transaction sends a positive signal and expect the hope share price to rebound after the shock downside; the target price falls slightly to HK $3.2

Hope to announce the sale of the stake in Century Dingli

It is hoped that its stake in Century Dingli has been sold to its major shareholders through related party transactions at a transaction price of 527 million yuan. The deal was completed through the direct sale of an investment holding company with an 8.93 per cent stake in Century Dingli (a total of 50 million shares) with a book value of 392.5 million yuan, plus other assets such as accounts receivable, with a total value of 515 million yuan. The deal will contribute 10 million yuan in after-tax net income to Hope Education in fiscal year 21. We note that the equity value of RMB 392.5 million is equivalent to Rmb7.85 per share, a premium of about 57 per cent to the share price of Century Dingli on September 1. In other words, this is equivalent to injecting about 150 million yuan into Hope Education by major shareholders.

Make positive progress for this controversial investment

It is hoped that the acquisition of the stake in Century Dingli will be announced at first in October 2020. Hope's share price fell immediately after the announcement. The acquisition is controversial because the desired acquisition is for Dingli College, a subsidiary of Century Dingli, which has a secondary college business in vocational education. but the core business of Century Dingli is the computer / communications business (accounting for nearly 70% of its total revenue), which makes it hoped to actually acquire the non-core business of Century Dingli. Therefore, we think that from the perspective of hope education, this equity sale sends a positive signal. In the long run, we believe that if we hope to acquire again after Dingli College is completely divested from Century Dingli, it will be an attractive acquisition.

Maintain buy rating: stock price correction brings valuation attractiveness

Hope, as well as the share prices of its higher education counterparts, have experienced a sharp correction since May 2021, which we believe is mainly due to the Kmur12 education policy and the general decline in the stock market. It is expected that the current forward price-to-earnings ratio for fiscal year 22 is 7 times, close to its lowest valuation in history. We believe that the share sale sends a positive signal and helps push up the share price of Hope. We will increase our forecast core net profit for fiscal year 21 by 1% and 2% respectively, mainly due to an increase in interest income. We lowered our target price from HK $3.4 to HK $3.2, based on a forward price-to-earnings ratio of 18 times forward earnings over the next 12 months (down from the previous 20 times earnings ratio based on lower industry valuations). Our target price corresponds to 29 times / 18 times forward price-to-earnings ratio for fiscal year 22.