Performance review
The company's mid-term profit in fiscal year 2022 was lower than we expected.
The company announced its interim results for fiscal year 2022 (during the performance period, the company's kindergarten and compulsory education business are no longer combined with corporate finance, and the year-on-year business mentioned in the report is based on sustainable business): the income is 1.2 billion yuan, an increase of 4.8% over the same period last year, basically in line with expectations; the adjusted return net profit is 580 million yuan, down 7.3% from the same period last year, which is lower than we expected. The decline in profits is mainly due to the company's increased investment in running schools.
Trend of development
Focus on the business of higher education and increase the investment in running colleges and universities. The revenue of the group's university business was 1.2 billion yuan in the middle of fiscal year 2022, an increase of 4.8% compared with last year. Of this total, the university business income was 1.09 billion yuan, an increase of 8.1% over the same period last year. The gross profit margin of the university business in the mid-fiscal year 2022 was 58%, down 11ppt from the same period last year; the profit margin of the university business in the mid-fiscal year 2022 was 52%, down 10ppt from the same period last year. The company said that the cost increase is relatively large, mainly in order to achieve the goal of high-quality school, strengthen the introduction of high-title teaching staff during the performance period, increase teachers' salaries, and carry out student training activities such as industry-education integration.
In addition, the transformation of its three K12 schools into higher vocational colleges and the construction of the new campus of Hunan Institute of Foreign Economics are still under way. We expect the company's overall revenue for fiscal year 2022 to be 2.46 billion yuan, an increase of 9.1% over the same period last year.
The cost increases and the overall profit margin decreases. In the middle of fiscal year 2022, the company's adjusted return net profit was 580 million yuan, and the adjusted return net profit margin decreased by 6ppt to 47.8% compared with the same period last year, mainly due to the company's increased investment in the higher education business. We believe that with increased investment or long-term trend, the overall profit margin for the whole year will be lower than that of last year. We estimate that the adjusted net profit of the company in fiscal year 2022 is about 1.18 billion yuan, and the adjusted net profit margin is 48%.
Profit forecast and valuation
Due to the fact that the construction of the company's new campus has not yet been completed, and the growth or slowdown in the number of students, we have reduced our income for fiscal years 2022 and 2023 by 2.3% and 1.9% to 2.46 billion yuan and 2.68 billion yuan. At the same time, due to the decline in the profit margin of the company's increased investment in running schools, we cut the adjusted net profit of 23% and 10% to 1.18 billion yuan and 1.3 billion yuan in fiscal year 2022 and fiscal year 2023. Maintain the neutral rating and downgrade the target price by HK $23.8 to HK $1.60 (using the segment plus total valuation method of the 2022 fiscal year price-to-earnings ratio, corresponding to the overall 4 times the 2022 fiscal year adjusted price-earnings ratio), which has 15.1% upside from the current share price. The current share price corresponds to a price-to-earnings ratio of 3.9 times 2023 / 3.6 times earnings for 2022 Universe.
Risk.
The growth of the number of students is slow; the opening of the three higher vocational colleges is uncertain.