The main business is sound; the dividend payout rate is 50%
The main business income of the new higher education FY22 was 1.92 billion yuan (RMB, the same below), an increase of 28.3% over the same period last year, mainly due to the increase in the number of students and the increase in tuition fees. The company achieved a net profit of 620 million, an increase of 9.2% over the same period last year, with a net profit margin of 32.3%. The company pays a final dividend of 93 cents, together with an interim dividend of 106 cents, with a dividend rate of 50% for the whole year. The company insists on running a high-quality school. Due to the investment in building a high-quality team of teachers and campus facilities and equipment, the cost during the period increased by 41% compared with the same period last year, of which the cost of teachers increased by 40.5%, directly causing the gross profit margin to fall by 5.6 percentage points to 39.0%, lower than expected. However, during the period, the company strictly controlled expenses, and the proportion of administrative expenses fell from 5.7% to 4.6%. Financial expenditure also fell 19.3% compared with the same period last year. Overall performance is in line with expectations.
Northeast school obtains business license of transitional for-profit school
The classified management of private schools has entered a stage of rapid development. The northeast school under the new high education period has obtained the for-profit school transitional license issued by the Ministry of Education in August 2022, and has completed the registration of for-profit schools and obtained an one-year business license for the transitional period. The company is docking with relevant departments on tax rates and land payments. The northeast school has only about 1000 mu of land allocated, and the management expects the land premium to be paid on a small scale and has a limited impact on the company's cash flow. The company's schools in Yunnan, Guizhou and Guangxi have also submitted for-profit applications and are waiting for approval. Management expects that the process of for-profit selection of private education as a whole will be accelerated in 2023.
Future capital expenditure is decreasing year by year.
The capital expenditure of FY22 is about 800 million, which is mainly invested in the improvement and upgrading of college facilities, including the land expenditure for the upgrading cost of Guizhou schools. The period of high capital expenditure of the company has passed, and the future capital expenditure is decreasing year by year, mainly for strengthening connotation construction, continuous upgrading for industry-education integration and so on. We expect FY23E/24E 's capital expenditure to be 490 million / 350 million yuan respectively.
Maintain the high dividend policy; the new target price is HK $3.90
It is believed that the company can maintain a high dividend ratio of 50% in the future. Corresponding to the dividend per share of FY22/FY23E, the current dividend yield of 8.3% and 9.6% is more attractive than that of the industry. Due to the higher-than-expected operating expenses and teacher investment of FY22, we reduced the net profit of FY23/FY24E by 5.2%, 6.0%, to 720 million / 800 million yuan, an increase of 15.3% and 12.3% respectively over the same period last year. The new target price is HK $3.90, corresponding to 8 times (maintaining) the price-to-earnings ratio of FY23E. Maintain a "buy" rating.
Investment risk 1. The policy and implementation risk of private schools becoming "for-profit" schools; 2. The enrollment was lower than expected.