Due to the impact of the Private Promotion Law, which began to be implemented on September 1, several major private K12 enterprises in the Hong Kong stock market suspended their trading on November 30 and announced the postponement of the publication of annual reports.
The companies are 01565.HK, 01317.HK, 01773.HK, 06068.HK and 01758.HK.
On December 14, Maple Leaf Education took the lead in disclosing the financial report that attracted much attention from the market. However, with a huge loss of 3.13 billion and a poor debt structure, Maple Leaf Education cannot escape huge fluctuations in its share price.
As of December 14, Maple Leaf Education plunged 17.24%, fell more than 23% at one point in intraday trading, and has fallen nearly 40% in the last three trading days, making it the "meat grinder" of the education sector. Dragged down by the performance of Maple Leaf Education, the Hong Kong education sector fell 2.88% on December 14, with China Oriental Education (00667.HK) and first Holdings Group (01269.HK) reaching record lows.
Broken arm to save your life? The termination of business brings a huge loss of 2.9 billion yuan.
Before we discuss the annual report card of Maple Leaf Education, let's sort out the Civil Promotion Law.
On May 14 this year, the official boots of the regulations on the implementation of the Law on the Promotion of civilian-run Education came into force on September 1 this year.
The Civil Promotion Law proposes that no social organization or individual may control private schools that implement compulsory education and non-profit preschool education by means of mergers and acquisitions or agreement control, and private schools that implement compulsory education shall not conduct transactions with interested parties.
This means that private compulsory education schools cannot be profitable or will be spun off from listed companies. After the merger, acquisition and agreement control of K9 schools and non-profit kindergartens are explicitly prohibited by the policy, the future growth of related enterprises will come from endogenous growth rather than extension acquisition integration.
But at the same time, the people's Promotion Law points out: "the establishment of private schools for the implementation of compulsory education shall be in line with the local compulsory education development plan." Therefore, the implementation of the policy requires local governments to adjust measures to local conditions, just like the regulatory strategy of "one city, one policy" in the real estate industry.
Under the background that local governments have not yet issued corresponding regulations and rules on the people's Promotion Law, Maple Leaf Education has begun to amputate its arms in advance to deal with potential risks.
Unlike other private K12 education enterprises in Hong Kong stocks, Maple Leaf Education operates mainly as international schools, providing talents to universities at home and abroad in the way of a combination of Chinese and Western education.
But although it is an international school, the market for Maple Leaf Education still belongs to the K12 field, so it is particularly cautious about the arrival of the Civil Promotion Law.
In the financial report for the year ended August 31, 2020, Maple Leaf Education mentioned that the company's ability to use the power of contractual arrangements to guide relevant activities and the ability to affect the variable returns of its affected schools terminated before September 1, and lost control over the affected schools, so the affected school business was included in the annual report as termination of business.
The "affected schools" here refer to K9 schools and pre-school education, which are mainly mentioned in the Civil Promotion Law. According to Maple Leaf Education, high school is the company's continuing business, while others are listed as termination of business. In order to optimize the operation structure to offset the impact of the civil promotion law, Maple Leaf Education transfers existing high school students from mixed high schools to high schools with independent business licenses in China.
After cutting off its non-high school business, Maple Leaf Education has to face a huge one-time loss. During the reporting period, the one-time loss caused by the divestiture of Maple Leaf Education was as high as 2.906 billion yuan (RMB, the same below), and the loss caused by the impairment loss of the continuing business and the change in the fair value of convertible bonds was also as high as 737 million yuan.
In terms of continuing and discontinuing business, the total income of Maple Leaf Education during the reporting period was 2.151 billion yuan, an increase of 40.7% over the same period last year; the loss attributable to the company's owners was as high as 3.128 billion yuan, compared with a profit of 505 million yuan in the same period last year; and the adjusted net profit was 610 million yuan, an increase of 13.5% over the same period last year.
In the 2020 and 2021 academic year, the company has made six five-year plans: 10 and 2 regions at home and abroad, 150 schools, enrolling at least 110000 students. The logic of the industry has changed, and Maple Leaf Education has been forced to adjust the development plan that has been depicted, and adjust the pyramid structure of the enrollment strategy to the inverted pyramid structure.
At the same time, the company mentioned that it will focus on developing senior high schools that offer world school courses, moderately develop ordinary high schools, and expand online education to provide domestic and foreign learners with world school courses, English as a second language ("ESL") courses and Chinese as a second language ("CSL") courses, as well as certificate examination training or other new educational products.
Where are the emptied assets?
Maple Leaf Education has suffered a huge loss of 3.1 billion this time, and the profit in the past 10 years is less than 3.1 billion.
So, the termination of business, which caused a huge loss in Maple Leaf education, just disappeared? Can you make some contribution to the listed companies in the future?
According to the Civil Promotion Law, in addition to agreement control, mergers and acquisitions are prohibited, private education enterprises in the stage of compulsory education are not allowed to choose for-profit, so they are not allowed to draw dividends in schools, nor can they carry out related party transactions, and these two aspects cannot carry out benefit transfer. In other words, the business spun off by Maple Leaf Education will be placed off the balance sheet, can not generate benefits for shareholders, nor can it generate cash flow for listed companies, the two will also be "separate".
For the business that has been spun off, it does not actually mean going out of business, but can no longer be incorporated into the statement of listed companies in terms of revenue, assets and profits. However, the asset is still an asset of the listed entity of Maple Leaf Education, the school can still operate normally, enroll students normally, and profitable funds can only stay inside the asset.
Therefore, if the business cut off by Maple Leaf Education does not choose to lie flat, there are several options in the future: the first is to eat the old money and maintain the operation in the non-profit situation in the future, which may be funded and acquired by the local government; the second is to transform into an international high school, or to shift to higher education / vocational education, sharing the dividends brought by the policy and market.
Another possibility is to wait for the specific details of the civil promotion law issued by a local government, and there may be an opportunity to return to the list in the future.
Yuhua Education (06169.HK) is a more effective enterprise in the field of higher education in China from K12 to higher education. Maybe it can be used for reference after the broken arm of Maple Leaf Education. In fiscal year 2021, Yuhua Education also spun off K9 from listed companies, with an one-time impairment loss of 1.042 billion yuan. Yuhua Education, which has achieved slimming, mentioned that it will promote the transformation of its three K9 colleges to higher vocational education in the future, and will increase investment in preparation for upgrading.
New problem: debt pressure, the source of high school students is blocked
During the reporting period, there were 117 schools in Maple Leaf Education, of which 85% were non-senior high schools and more than 80% were students.
Thus it can be seen that the people's promotion of the French Black Swan has no small impact on Maple Leaf Education, and the divestiture of the affected business has also led to "internal injuries" in the company, and even almost hollowed out the listed companies.
Due to debt and adjusted net profit calculation, Deloitte Touche, an independent auditor of Maple Leaf Education, believes that there are significant uncertainties in Maple Leaf Education, which may give rise to significant doubts about the company's ability to continue to operate. Therefore, do not comment on the company's consolidated financial statements.
As of the end of August this year, the current debt of Maple Leaf Education reached 3.3 billion yuan; at the same time, bank loans of 2.629 billion yuan, 96.9% will mature within a year, while the remaining 3.1% will mature in a year. However, the company's bank balance and cash are only 740 million yuan, so we can imagine how much pressure Maple Leaf Education is facing in the short-term debt repayment.
At the same time, the asset-liability ratio during the maple leaf education period also soared to 243.5% from 78.5% in the same period last year.
In order to ease the debt repayment pressure, Maple Leaf Education is negotiating with a number of banks to secure about 1.4 billion yuan in loans, but whether it will succeed is still unknown. If the financing plan is not successfully completed, the auditor's concerns will also become a reality.
In addition, the original enrollment pyramid structure of Maple Leaf Education has become an inverted pyramid as a result of this civil promotion law. For the high school business that the company has always relied on K9 business to contribute students, the sustainability of students will also become the top priority for the company.
On the other hand, the "double reduction policy" tends to spread to international schools. Last month, Haikou Harrow International University said that it had encountered problems in applying for a school permit, and that its ninth-grade students would collectively face the reality of having to take the high school entrance exam.
If this phenomenon will be carried out uniformly across the country, will the children be diverted to vocational high school if they fail in the high school entrance examination in the future? Therefore, this phenomenon has also become a potential disadvantage for the business enrollment of Maple Leaf Education Senior High School.
Caihua noted that Maple Leaf Education had been significantly reduced by UBS before the disclosure of the annual report.
Data show that on December 1 and 2, UBS reduced its holdings of 9.574 million and 20.458 million shares of Maple Leaf Education respectively, involving more than 27 million yuan, and its shareholding decreased from 15.68% to 14.94%.
Ren Shuliang, founder and controlling shareholder of Maple Leaf Education, has increased his stake in the company several times since 2019, most recently on May 17. Since 2019, Ren Shuliang has spent a total of 150 million yuan to increase his holdings of 56.034 million shares in the company. so far, there is no record of reducing his holdings, and there has been no record of increasing holdings since the final increase on May 17.