There is great potential for endogenous growth, but short-term profits have declined due to the rise in enrollment expenses and new business development. Zhonghui Group's 1HFY22 income is 823 million yuan, an increase of 48.4%, which is 50% of Huatai's annual income forecast, in line with expectations. Gross profit also increased by 49.0% to 413 million yuan. The increase in income and gross profit was mainly due to the consolidation of two vocational colleges and a technical school, as well as the endogenous growth of Guangdong schools. Due to the relatively high enrollment fees of vocational schools, the expansion of the size of the superimposed management team, and the impact of some new business investment, the rate of sales and management expenses increased by 5.9 percentage points, resulting in a reduction of 4 percentage points to 32.1% of the adjusted net interest rate. Taking into account the above changes and the company's tuition fee increase may be more moderate and other factors, we adjust the FY22/23/24 homing net profit to RMB4.42/5.15/6.36 billion yuan (previous value:
RMB4.22/5.68/7.19 billion yuan). According to market changes, we raised WACC to 15.05% (previous value: 11.67%) and lowered the target price of DCF to HK $7.00 (HK $0.84 to RMB, corresponding to 12 times FY23 forecast PE). Maintain "buy".
With the simultaneous development of endophytic extension, the number of students and average tuition fees have risen steadily. 1HFY22's tuition / boarding fee income is RMB 723 million (an increase of 52.1% over the same period last year), mainly due to the continuous increase in the number of students and average student fees. During the period, due to the consolidation of the Sichuan Urban Vocational College and the Sichuan Urban technician College, which completed the acquisition in 21 years, and the Guangdong Chinese Business Technical School, which completed the acquisition in February 22, the enrollment of the original Guangdong school continued to grow, and the total number of students increased by 22.3% to 76301 compared with the same period last year. At the same time, the company continues to increase investment in running a school, with a capital expenditure of RMB 255 million for the acquisition of land use rights, the maintenance and upgrading of existing teaching facilities, and the construction of a new campus. The improvement of campus environment and the quality of running a school provide the basis for the steady growth of tuition fees. In the 21st 22 academic year, the per capita tuition fees of Chinese Business College and Chinese Business Vocational College increased by 50-4200 yuan, while those of Sichuan City Vocational College increased by about 1800 yuan.
The industry-education integration project with industry leaders is progressing smoothly, and the new vocational education law is further beneficial to the company's business development. 1HFY22 Zhonghui has set up an industrial college with industry leaders such as middle-hand games, Yuanxin Group, programming cats, etc., to cooperate in the development of mobile games, preschool education, medical beauty, intelligent pension and other fields to train applied and skilled talents. Considering that the newly revised Vocational Education Law issued in April 22 clearly encourages enterprises to participate deeply in vocational education and deepen the integration of industry and education, we expect the company to further expand its vocational education business.
Coordinated development of endogenesis and extension; maintenance of "buy"
Combined with the combined factors such as the increase in the income of the three newly merged schools, the increase in tuition fees will be more moderate, the rate of long-term sales expenses will be increased, and the cost of short-term business development will be higher, we will adjust the net profit of FY22/23/24 homing to RMB 442 million / 515 million / 636 million (previous value: RMB 422 million / 568 million / 719 million). We have lowered the target price based on DCF to HK $7.00 (an increase of WACC to 15.05%, with a sustainable growth rate of 1% HK $1 = RMB0.84, corresponding to 12.01x FY23 forecast PE). Maintain "buy".
Risk tips: epidemic risk, the scale of business expansion is not as expected, and the competent authorities control tuition fees.