The performance is lower than expected, high investment in running a school and potential debt repayment or profit margin and short-term capital pressure hope that the FY22 income / return net profit of education will be 3.043 billion yuan / 446 million yuan (yoy+30.9%/-26.3%), which is lower than our previous forecast of 3260 million yuan. The adjusted gross profit margin / adjusted net profit rate decreased by 4.2 percentage points compared with the same period last year, mainly due to the company's allocation of additional teachers to improve teaching quality and increased investment in campus expansion and training facilities. We expect that the company will maintain a large-scale investment in running a school in the next two years, and the corresponding increase in depreciation and amortization may be a short-term drag on profit margins. Therefore, the FY23/FY24 is lowered, and the net profit of new FY25 is forecast to be 610 million / 733 million / 841 million yuan (previous value: 848 million / 993 billion). Combined with market changes and exchange rate effects, the target price of DCF is lowered to HK $0.89 (previous value:
HK $1.08, WACC adjusted from 13.06% to 14.10%, with a sustainable growth rate of 2% HK $1 = RMB0.90). Maintain "buy".
The number of students in the new school year has reached a new high, and vocational education has distinctive characteristics. The local education income of FY22 Co., Ltd. has increased by 34% to 2.696 billion yuan with the coordinated development of schools at home and abroad, mainly due to the continuous growth in the number of students and the consolidation of some new schools. In the 23 academic year, the company enrolled more than 95000 new students, an increase of 15% over the same period last year, and a comprehensive enrollment rate of more than 85%. The number of students in the school exceeded 280000, an increase of 21% over the same period last year. The average tuition fee per student in the school is about 12000 / 12000 yuan respectively, and the company expects to reach 20,000 people / 20,000 yuan respectively in the future.
The steady growth of enrollment scale is closely related to the company's focus on training high-level professional and skilled personnel, actively promoting industry-education integration, school-enterprise cooperation, and continuously improving students' employability. In terms of overseas business, FY22's international education income was 345 million yuan, an increase of 11% over the same period last year, of which the enrollment of Malaysian schools increased by 47%. In November 22, the company acquired Wickler Business School of Hungary and further expanded its overseas business.
The investment in running a school is relatively high, the convertible bond is approaching the return period, and the profit margin and capital or short-term pressure on FY22's capital expenditure is 2.625 billion yuan, of which 2.32 billion yuan is expansion expenditure, an increase of 47.6% over the same period last year, mainly used for college expansion, practical training and construction projects. In addition, the company allocated more teachers, introduced more than 2400 new teachers, implemented small class teaching, and the salary expenditure of teaching staff increased by 49.9% to 867 million yuan. Considering that the overall utilization rate of the company's school premises has exceeded 90%, the company is expected to maintain a large scale of capital expenditure in the next two years for campus reconstruction and expansion, strengthening of teachers and continuous upgrading of teaching facilities and equipment. the corresponding incremental depreciation and amortization may lead to short-term pressure on profit margins and capital reserves. In addition, the company's book of about 1.872 billion convertible bonds will be sold back in February 24, which may also increase financial pressure.
Lower the target price to HK $0.89 to maintain "buy"
Considering that the incremental depreciation amortization caused by high capital expenditure will drag down the profit margin in the short term, we downgrade FY23/FY24, increase the homing net profit of FY25 to 610 million / 733 million / 841 million yuan (previous value: 8.48 pm 9.93 billion), and lower the target price to HK $0.89 (previous value: HK $1.08, WACC:
14.10%, corresponding to 10.51x FY23E PE). Maintain a "buy" rating.
Risk hint: the increase in the size of students / the progress of the transfer of independent colleges is not as expected, and the control of tuition pricing by the competent authorities has been tightened.
