Income and gross profit margin increased steadily compared with the same period last year, academic and non-academic business went hand in hand with income of 472 million yuan and yoy+ of 19.9% in Zhonghui Group, of which higher / secondary / non-academic vocational education accounted for 85.5%, 11.9%, 2.6%, respectively, an increase of 11.6%, 122.6%, 80.9%. Thanks to tighter cost controls, gross margin rose 0.4pct to 50.4 per cent year-on-year. The company's 1QFY23 revenue is 25% of our FY23 forecast for the whole year, in line with expectations. The number of students increased by 19.3% over the same period last year to 84404, of which the contribution of Chinese business technical schools increased by 6700. Based on the 1QFY23 data, we slightly raised the FY23-FY25 enrollment forecast, and raised the FY22/FY23/FY24 company's home net profit forecast to 6.32 million yuan (the previous value is 596 pounds, 662 million yuan). Taking into account the changes in the market, we raised the WACC from 14.53% to 17.05%, resulting in a target price of HK $6.37 based on DCF (a sustainable growth rate of 1%, corresponding to 9.59 times FY23 forecast PE). Maintain "buy".
The scale of students has exceeded the company's annual target, and the potential for campus expansion is sufficient. The growth of 1QFY23 income of Zhonghui Group is mainly driven by the growth of the size of students. As of November 30, 2022, the company had 84404 students, exceeding the company's FY23 target of 83000 and an increase of 13667 compared with the same period last year. The number of students in the original domestic schools continued to grow, of which Sichuan Urban Technical College (secondary vocational school) increased by 20.2% compared with the same period last year. FY22 the newly acquired Guangdong Chinese Business Technical School (secondary vocational school) contributed an increase of about 6700 students. At present, the utilization rate of the company's Sichuan / Guangdong campus is 85% and 81% respectively, and there is still a land reserve for campus expansion. We expect to fully meet the needs of the continuous growth of students in the next 3-5 years.
Continue to invest in the construction of training facilities and promote the integration of industry and education on the ground, and continuously improve the quality and level of running a school. 1QFY23 invested about 178 million yuan (yoy-6%) in the reconstruction and expansion of campus facilities. The company has built and opened the experimental building and simulation hospital of Chinese Business Health Medical College, which covers an area of more than 18000 square meters, which is used for multi-scene simulated clinical teaching, such as basic nursing, ward, operating room, midwifery and so on. 18 e-commerce live studios have been set up for the "Chinese Business selection" project, with a total area of more than 2000 square meters. At the same time, the company has actively deepened school-enterprise cooperation in many areas, such as digital cultural creativity, enterprise digital transformation, and medical beauty, and promoted the growth of non-academic vocational education income by 80.9% compared with the same period last year. After continuous connotation construction, the school-running quality and level of the company's schools have been continuously improved: Guangzhou Huashang University has been approved to set up a doctoral workstation in Guangdong Province, and 3 provincial-level first-class undergraduate majors and 6 provincial-level first-class courses have been added to further enhance the attractiveness of enrollment.
Considering the changes in the market, we lowered the target price to HK $6.37 and maintained the "buy". Considering that the number of 1QFY23 students in Zhonghui Group exceeded our previous expectations (82485), we raised the parent net profit of FY22/FY23/FY24 to 6.32 hectares, 698 pounds, 755 million yuan. Based on market changes, we raised WACC to 17.05% and lowered the target price based on DCF to HK $6.37 (previous value: HK $6.98), corresponding to 9.59 times FY23 forecast PE. Maintain "buy".
Risk tip: the growth of the size of students is not as expected, and the competent authorities control the tuition fees.