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中信证券:政策东风下把握高教低估值机会

CITIC Securities: Seize opportunities for undervaluation of higher education under policy winds

中信證券 ·  Nov 25, 2021 14:19  · Opinions

The higher education sector relies on the extension flexibility brought about by steady endogenous growth, mergers and acquisitions and light asset output, and its performance has both high certainty and growth, along with the successive introduction of supporting measures for vocational education, the acceleration of for-profit selection and the gradual realization of performance. Plate investment confidence and attention is expected to increase, leading to the overall valuation repair. At present, the valuation of the sector is historically low. We suggest that we actively seize the allocation opportunities of the current higher education sector, with emphasis on Hope Education, Chinese Education Holdings, Neusoft Education, livelihood Education and China Xinhua Education. It is suggested to pay attention to Chinese science training, Zhonghui Group, Huaxia audio-visual education.

Higher education is one of the most deterministic segments in the consumer industry.

According to CITIC Research Department Strategy team report "A-share market 2022 investment strategy-blue chip return (2021-11-8)", the consumer sector is an important investment main line in 2022. In the context of the slow recovery of overall consumer demand and rising prices upstream, higher education is one of the most deterministic segments of the consumer industry. Higher education business model is stable, in the absence of major changes in the school, places and tuition fees will not fluctuate significantly, and with the expansion of higher vocational and junior college enrollment in the past two years, the number of places has increased steadily. In terms of demand, the scarcity of higher education resources in China (the gross enrollment rate of higher education in China is 54.4% in 2020) provides sufficient support for the school enrollment rate.

The promotion of for-profit selection is expected to accelerate and there are opportunities for a revaluation of the balance sheet.

In the past, the slow progress of the classified management of private higher education has aroused concerns in the market about the uncertainty of the for-profit choice of higher education. we believe that there are no obstacles to the for-profit choice of higher education, no matter in terms of policy or practice. with the time point of local selection approaching, the overall progress is expected to accelerate. After the for-profit selection is completed, the for-profit private schools can flexibly control the income, or can dispel the potential worries of the market. The cost of land and taxes may increase, but there are opportunities for revaluation on the balance sheet, the valuation value of the PB dimension is prominent, and the financing capacity is further strengthened.

Vocational education policy is good frequently, and high-quality development has a bright future.

Since the beginning of this year, the regulations on the implementation of the Law on the Promotion of Private Education in China and the opinions on promoting the High-quality Development of Modern Vocational Education (hereinafter referred to as "opinions") have successively landed, explicitly encouraging social capital to participate in vocational education, and providing full support for vocational education from the aspects of policies and mechanisms. The opinion requires that the enrollment scale of vocational undergraduates is not less than 10% of that of higher vocational colleges (the enrollment scale of vocational undergraduate schools will be 126000 in 2020, accounting for 2.4% of higher vocational enrollment), which is expected to bring incremental places for existing private undergraduates and provide the possibility of upgrading to high-quality colleges. The further improvement of the vocational education system is also expected to expand the source of higher vocational students. China's vocational education, as an important part of China's industrial upgrading, is in line with the general direction of the national development strategy. We believe that the future development of vocational education is relatively certain, and the policy will also support the sound development of excellent vocational education companies.

Most companies in the sector have excellent fundamentals, growth has both high certainty and growth, and current valuations are low.

In the past three years, the higher education sector's income CAGR is 10% Mel 48%, the adjusted net profit CAGR is 12% Mel 38% (some companies), while the valuation level continues to decline (the average valuation dropped from 22 times dynamic PE to 13 times PE, and up to 35 times before the draft was submitted for review). The main reason for the mismatch between performance and valuation is the changing market expectations for policies. Looking to the future, the performance of the higher education sector still has both high certainty and growth.

From the perspective of internal students, 1) with the promotion of the conversion, on the one hand, the schools that have completed the conversion can reduce the expenditure of senior campus management fees, and at the same time, the number of places and tuition fees are expected to increase; 2) some undergraduates are expected to get new vocational undergraduate places, and some specialties are also expected to be upgraded to professional undergraduates; 3) the enrollment of overseas colleges and universities under some higher education companies is expected to resume.

From the extension point of view, 1) the short-term transfer of centralized promotion period may appear more M & An opportunities; 2) some companies' light assets business expansion is smooth.

Risk factors:

The progress of transfer and for-profit selection is not as expected, the enrollment is not as expected, the risk of policy change and so on.

Investment advice:

The higher education sector relies on steady endogenous growth and mergers and acquisitions; the extension flexibility brought by light asset output, and its performance has both high certainty and growth. with the successive introduction of supporting measures for vocational education, the acceleration of for-profit selection and the gradual realization of performance, the confidence and attention of investment in the plate is expected to increase, leading to the repair of the overall valuation. At present, the valuation of the sector is historically low. We suggest that we actively seize the allocation opportunities of the current higher education sector, with emphasis on Hope Education, Chinese Education Holdings, Neusoft Education, livelihood Education and China Xinhua Education. It is suggested to pay attention to Chinese science training, Zhonghui Group, Huaxia audio-visual education.

The translation is provided by third-party software.


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