In the mid-fiscal year, revenue rose 51 per cent year-on-year to 634 million yuan, in line with expectations; core net profit rose 35 per cent year-on-year, better than expected, mainly due to the bright performance of profit margins
Core earnings in fiscal year 21-23 are expected to grow at a compound annual growth rate of 26%, mainly driven by endogenous expansion + mergers and acquisitions under favorable policies.
Broad growth prospects, reaffirm the buy rating; target price lowered to HK $7.4
Benefiting from the consolidated tables of Harbin schools, the strong mid-term performance in fiscal year 21, the income of science and technology training reached 634 million yuan in the middle of fiscal year 21, an increase of 51% over the same period last year, in line with expectations. The core net profit of the report reached 420 million yuan, an increase of 35% over the same period last year, which was better than expected. Despite the impact of the new merger and acquisition of Harbin schools since April, the profit margin performance is still eye-catching. The gross profit margin reached 71.2% (2.7 percentage points lower than the same period last year) and the core net profit margin reached 66.3% (8.1 percentage points lower than the same period last year), partly due to an increase in interest payments. As of June 2021, Kepei's total cash on hand reached 1.46 billion yuan, which remained stable compared with the end of 2020, but compared with the net cash of 927 million yuan in December 2020, it recorded a net debt of 3 million yuan as of June 2021. mainly due to debt financing for two mergers and acquisitions and Huaibei school expansion.
Broad prospects for growth
We expect the core net profit of Kepei to grow at a compound annual rate of 26% in fiscal year 21-23, mainly driven by the following factors: 1) thanks to favorable policies, the number of internal students and tuition fees continue to grow. The guidelines for the compound annual growth rate of the number of students / income / net profit for the 20-23 fiscal year are 20%, 25%, and 30%, respectively. 2) the new merger and acquisition of Ma'anshan School will begin in March 2022 and will contribute 39% of the incremental income in fiscal year 22. 3) the new merger and acquisition of Huaibei School will begin in September 2021, with the rapid climbing of the number of students, it will contribute 31% of the incremental income in fiscal year 23. 4) all Kopei's universities have expansion plans to support the growth of the number of students, and plans to buy a new piece of land for Guangdong schools this year; 5) increase the profit margins of two newly acquired schools; 6) potential university mergers and acquisitions: Kepei maintains the M & A guidelines of 1-2 mergers and acquisitions each year; 7) Kepei plans to expand its vocational school network through a light asset model.
Strong growth supports upward valuation and maintains buy rating
We reduced our core net profit for the 22 fiscal year by 3% and 1% respectively, mainly due to the increase in net financial costs caused by the increase in net debt. We lowered our target price from HK $8.9 to HK $7.4, based on a price-to-earnings ratio of 13 times over the next 12 months (down from the previous 16 times earnings based on a reduction in industry valuations, referring to the average historical price-to-earnings ratio). Our target price corresponds to 16 times / 12 times the projected price-to-earnings ratio for fiscal year 22. Kopei plans to change the end of its fiscal year from December to August (its results for fiscal year 21, which ended in August, will be announced in November). Kopei's current valuation is historically low (currently 8 times forward 12-month forward earnings) and we firmly believe that its valuation does not reflect its strong growth under stable policy support prospects.