Unswervingly follow the road of high-quality development, short-term profit margins are under pressure, long-term steady growth trend does not change the new higher education group FY22 revenue increased by 28.3% to 1.922 billion yuan compared with the same period last year. Gross profit margin fell 5.6 percentage points year-on-year to 39.0%, mainly due to the company's increased investment in teachers and campus facilities. The net profit of homing increased by 9.2% to 620 million yuan compared with the same period last year. Revenue and net profit were lower than we had expected (23.19 / 647 million yuan), mainly due to the company's initiative to optimize the structure of students, the growth of the total number of students slowed down in the short term. The annual dividend payout rate is about 49%. Taking into account the slowdown in the growth of the number of students and the increase in investment in high-quality schools, the gross profit margin is expected to be under pressure in the short term. Therefore, we downgrade the FY23/24/25 homing net profit forecast to 670, 717, 784 million yuan (previous value: RMB 759, 829 million). In line with market changes, we raised WACC to 14.16% (previous value: 12.11%) and lowered the target price to HK $4.05 (sustainable growth rate of 2%, HKD / RMB = 0.91). Maintain "buy".
The connotation construction has been continuously strengthened, and the effect of improving teaching quality is remarkable.
In terms of teachers, the company has made great efforts to introduce high-level talents for the construction of disciplines and specialties, raise the salary standards for core teaching posts, and improve the welfare of teaching staff. The manpower cost of FY22 has increased by 40.5% compared with the same period last year. In terms of teaching facilities, the company continues to build and upgrade experimental training rooms, intelligent classrooms, libraries, etc., and the investment related to FY22 has increased by 235 million. In terms of teaching, the company cooperates with well-known universities at home and abroad to share resources and jointly build advantage majors.
The company's high-quality development strategy has achieved good results, and the competitiveness and quality of students' employment have been steadily improved. The company focuses on the sunrise industry. As of FY22, the initial employment rate of students in its schools reached 89%, higher than the national average, and the high-quality employment rate increased by 187% compared with the same period last year. Graduates employed in the world's top 500, national top 100, listed companies and other famous companies accounted for 23% of the total number of high-quality employment.
The steady growth in the number of new students, the optimization of the structure of students, and the potential for the growth of tuition fees have led to the gradual enhancement of the competitiveness of enrollment due to the excellent teaching quality of the company. The company estimates that the total number of students in the 2022max 2023 academic year is about 140535, with steady growth in the number of freshmen, including an increase of nearly 3000 undergraduate programs, a 45% increase in the number of undergraduate programs, a 5% increase in the proportion of freshmen at the undergraduate level, and a further optimization of the student structure. In addition, the average tuition fee for new students increased by 13.2% in the 2022max 2023 academic year. We expect that with the gradual adjustment of the structure of students in various schools, the proportion of undergraduates with high tuition fees will further increase, and the overall tuition fees have great potential for growth.
Lower the target price to HK $4.05 to maintain "buy"
We expect the total number of students to grow slowly before the completion of the adjustment of the company's student structure; the company will continue to increase investment in high-quality schools to lay the foundation for future growth, and the gross profit margin may be under pressure in the short term. Therefore, we downgrade the FY23/24/25 homing net profit forecast to RMB 670, 000. Combined with market changes, the WACC was raised to 14.16% (previous value: 12.11%), and the target price based on DCF was lowered to HK $4.05 (previous value of HK $5.78, sustainable growth rate of 2%, HKD / RMB = 0.91), corresponding to 8.71x FY23E PE. Maintain "buy".
Risk hint: the supervision of tuition pricing by the competent authorities is tighter; the growth of the size of students is not as expected.