Editor's note: on July 28, 2022, the "2022 Summer Hong Kong Stock Investment Forum" created by Gelonghui was held in Shenzhen. Many executives of high-quality listed companies come to zero-distance online communication with investors. In order to let more investors know more about listed companies and accurately capture future investment opportunities, Gronghui organized this roadshow speech of listed companies for you.

On the day of the event, the management of Zhonghui Group attended the roadshow and exchanged the latest situation of the company and the industry with investors. Zhonghui Group is a famous provider of higher education and vocational education, which is mainly located in the two strong economic development zones of Guangdong-Hong Kong-Macau Greater Bay Area and Chengdu-Chongqing Economic Circle and overseas areas. Its business scope includes academic and non-academic education.Zhonghui Group has always been with steady growth, good brand reputation, clear expansion path and strong executive ability of management.It is favored by long-term investors.

The author believes that the company has a high content of information in the roadshow, including sharing more important industry information, which is worthy of investors' reference.

The first curve strives for progress in stability, and the second curve accelerates growth

Last week, Zhonghui Group released its third-quarter results, continuing the trend of high growth. In the first three quarters of the 2022 fiscal year, Zhonghui Group achieved an income of 1.257 billion yuan, an increase of 39.5% over the same period last year, and a gross profit of 632 million yuan, a year-on-year growth rate of 40.7%.

The academic education sector strives for progress in the midst of stability, which constitutes a sound foundation for the growth of the group. In fiscal year 2022, the group had about 78000 students, an increase of 24.9% over the same period last year. The 100% stake in Guangdong Chinese Business Technical School acquired by the group began to be merged at the beginning of 2022, and the layout of vocational education was improved at an accelerated pace.

In addition, the development of the business sector of non-academic vocational education is quite eye-catching, with an income of 53 million yuan during the reporting period, an increase of 57% over the same period last year, accounting for nearly 4% of the total income. Through this data, we can see that the relevant business has gradually matured after the cultivation in the past few years, is landing rapidly, and has formed the second growth curve. In the previous performance guidelines given by Zhonghui Group, the target income of the non-academic vocational education business sector in fiscal year 2022 is more than 70 million yuan. At this pace, the goal can be easily achieved.

The business of non-academic vocational education not only serves its own teachers and students, but also produces strong synergy with the business of academic qualifications, but also can export services to schools and vocational education institutions throughout the country. In addition, the business has higher profitability and a lot of room for imagination. Zhonghui Group has issued performance guidelines for non-academic vocational education, that is, it hopes to increase the proportion of non-academic vocational education business income to 15% to 20% within three to five years. It can be predicted that this sector will drive the company into a faster growth lane.

It is worth mentioning that although the company strategically increased its investment in costs during the reporting period, under the successful measures of cost control and efficiency, the proportion of costs in revenue decreased from 50.1 percentage points to 49.7 percentage points. It is rare that the operating efficiency of the company can still be improved steadily.

In addition, the current capital risk aversion is still high, in the era of cash king, Zhonghui Group's strong cash flow advantage is more prominent. As of the third quarter, Zhonghui had $517 million in cash on hand. As the new school year begins in September, the company will add more than $1 billion in extra cash. Good cash flow not only means that the company can grow steadily through the cycle, but also the basis for future foreign mergers and acquisitions and adhere to expansion.

Furthermore, this establishes the company's ability to pay dividends. Zhonghui Group has also insisted on dividends since its listing, with a dividend ratio of 30% per share of HK8.4 cents per share in the 2022 fiscal year, up 52.7% from a year earlier. Zhonghui Group said it expects its capital expenditure to decrease year by year in the future. Combined with the cash flow level of Zhonghui, the sustainability of future dividends is worth looking forward to.

Embracing industry dividends, long-term growth potential will be further released

As we all know, higher education and vocational education policies are always good. Can Zhonghui Group embrace industry dividends and achieve long-term growth in the future?

The author believes that the following two aspects support the development of Zhonghui Group:

1. Mature educational layout and excellent location. Five schools in mainland China are located in Chengdu-Chongqing Economic Circle and Guangdong-Hong Kong-Macau Greater Bay Area. In terms of educational demand and ability to pay, these two economic circles have strong attraction, a large number of students and relatively scarce educational resources. In addition, Guangdong Province, as an early province to encourage private education, the tuition fees of private colleges and universities implement a record system, which means independent pricing, so the head school has stronger pricing power. The policy of education in Sichuan is skewed, and the market-oriented pricing of private colleges and universities is liberalized to open up room for tuition fees to rise.

2. The group itself is of good quality and has a strong ability to attract students, while the strong executive ability of the management ensures that the pace of expansion is very stable. The new campus and campus expansion that are gradually put into use also provide capacity for scale growth-the total capacity of the group's five campuses is 120000 after they are all put into use.

Judging from the past data, its enrollment plan and admission scores have been leading the same kind of colleges and universities in the same region. In the 2022 / 23 academic year, the Chinese Business College of the Group's undergraduate colleges and universities obtained a total enrollment plan of 10900, an increase of more than 20% over last year, of which the enrollment plan for junior college students increased significantly to 5100 compared with 3800 in the same period last year. Among the 10900 enrollment plans, Zhonghui Group has now successfully completed all Guangdong enrollment plans (10700). In addition, more than 100 provincial enrollment plans will be carried out one after another in the following month. among them, the enrollment of PGA students exceeds the provincial control line by about 20 points at one time, and the admission score is even as high as 100 points. In addition, so far, the group's higher vocational and secondary vocational education colleges are more optimistic about enrollment, which is expected to improve compared with the same period last year. We can see that the group's education brand is enthusiastically sought after by students. Zhonghui Group expects that the number of students in the school will exceed 82000 in the academic year of 2022.

In addition, the group has strong pricing power because of its good education quality and brand effect. The group expects to increase undergraduate tuition fees by 3% Mel 5% in the 2022 and 23 academic year, and increase tuition fees for individual majors in higher vocational and secondary vocational schools by about 5%.With both volume and price rising, the growth of the group's performance is worth looking forward to.The group has given an annual revenue target of 1.65 billion yuan, an increase of more than 30% over the same period last year. Judging from the three quarterly reports, there is no problem in achieving the target.

In addition, the management of Zhonghui Group has also provided valuable industry research materials in the Quan A session. At present, the valuation of the primary and secondary market is upside down, the author believes that this is a signal of undervaluation of the secondary market, investors can refer to the primary market as the anchor of valuation.

Quan A link

Q1: future merger and acquisition plans?

答：At present, the PE of the whole plate is now low. The current merger and acquisition of schools is about 10 times to 12 times PE. Generally speaking, it is the subject of high PE to acquire the target of low PE. Therefore, in the current market situation, the possibility of M & An is relatively low, but there is not no M & A plan at all.

Mergers and acquisitions include light asset mergers and acquisitions and heavy asset acquisitions. Light asset acquisitions are sustainable. There is no limit on the number of places for mergers and acquisitions of light assets, so the ceiling is higher. It is not the right time for the merger and acquisition of heavy assets. If the group's PE rises in the future, it can start the plan.

Q2: the growth rate of the company's non-academic vocational education and training business is considerable, can you elaborate on what is the main income composition? What are the prospects for this business in the future?

Since 2019, the development of our non-academic vocational education has been set. In fact, we set a goal at that time, that is, the income generated by the business of non-academic vocational education will grow by no less than 50% in each of the next three years. This year is the third year of the implementation of the plan, and we can see that the actual growth rate is far beyond the plan. Judging from the current situation, it is also expected to exceed the target growth rate this year.

From the perspective of income composition, this business segment is mainly divided into two major categories, the first is related to academic qualifications-related examinations and training, the proportion of income in this sector is about 35%. The other is the examination and training programs that are not related to academic qualifications, accounting for 65% of the income, mainly including all kinds of vocational qualification training, certificate training internship programs, and so on. In the future, we will vigorously promote the integration of industry and education in accordance with the guidelines of national policy. It is expected that the industry-education integration project has a strong cash flow ability and a high growth rate, and will be included in our non-academic related business in the future.

In the future, we hope to increase the share of income in our non-academic vocational education sector to 15%-20%. Among them, the integration of industry and education should account for 10%.

Q3: what is the impact of the epidemic on the company's business?

答：At present, the epidemic does not have any negative impact. Because our business in this area is now divided into two, the first is academic education business, and the second is non-academic education business.

In the education business of academic qualifications, students will not give up their studies because of an epidemic, so the demand is stable. On the contrary, the epidemic may also have had a promoting effect. Students spend most of their time in school, which not only helps to improve the group's daily and teaching management, but also enables us to fully understand the needs of students.

There has been a rapid growth in non-academic education, partly because we know more about the demands of students and parents than ever before, and in the current environment, we give more prominence to our school's advantages in employment and in promoting the quality of students' exports. When there is no epidemic, people may think that all private colleges and universities are homogeneous. The outbreak of the epidemic actually allows everyone to see why our schools have a high admission score because of better student management, better student education and better employment. The epidemic will make the gap more obvious.

Q4: are there any integration effects to share in the two schools the company acquired in Sichuan? thank you.

答：In December 2020, we acquired two schools in Sichuan-Sichuan City Vocational College and Sichuan City technician College. The goal of our acquisition is very clear, and it must be a school of good quality. For example, Sichuan City Vocational College is operated according to undergraduate standards, which is of great help to the improvement of the school level in the future.

After the completion of the acquisition, the two schools will have some more extensive cooperation with the original undergraduate and junior college schools in professional construction, teacher-student exchanges and so on, especially in the mutual discussion and construction of superior majors. For example, in the field of preschool education and great health, colleges and universities of both sides continue to work together to achieve complementary advantages. In addition, teachers and students can also hold cross-regional lectures and competitions, which can promote exchanges between teachers and students in the Chengdu-Chongqing Economic Circle and the Greater Bay area, as well as common growth. Also helps the exchange platform of teacher resources, after the choice of institutions and majors has increased, the group can also maximize the potential of their education according to the respective advantages of teachers, and then be able to provide better educational services for students.

In addition, the acquisition is conducive to the development of industry-education integration projects. When doing industry-education integration, the group can do more industry-education integration projects according to the different needs of colleges and universities in the two regions.

In addition, through the advantages of both sides of the resources, the relevant loan interest rates are optimized.

This is the acquisition integration effect, thank you.