Business developed steadily in the first quarter

Zhonghui Group released operating data for the first quarter of fiscal year 2023. The company's first-quarter revenue was 470 million yuan (the same below), an increase of 19.9% over the same period last year, in line with expectations. In the income structure, the proportion of higher vocational education / secondary vocational education / non-academic vocational education is 85.5%, 11.9%, 2.6%, respectively; the income of the three parts increased by 11.6%, 122.6%, 80.9% respectively compared with the same period last year.

The gross profit margin in the first quarter was 50.4%, a year-on-year expansion of 0.4%, the same as in fiscal year 2022. The number of students enrolled in the 202222 23 academic year was 84000, an increase of 19.3% over the same period last year, of which 10% came from endogenous growth and 9.3% from the influence of Chinese business technician schools. The overall campus utilization rate of the company is 81%, 85%, and there is still room to accommodate more students.

Focus on the connotation construction of vocational education

The company continues to promote the implementation of industry-education integration projects in its schools, combine enterprise projects with teaching, promote the project process by teaching, and help students master employment skills and familiarize themselves with the employment environment. Huashang College and Zhongshang Tour have set up a game animation workshop to focus on the new development of digital culture and creativity, and set up a medical beauty industry institute with Guangzhou Yuanxin Group to establish a medical beauty training platform. The Chinese Business College has established an experimental building of the Chinese Business Health Medical College, which simulates the working environment of the hospital, covering nursing, wards, operating rooms and other scenarios, to meet the growing needs of major health-related majors, and to provide clinical simulation practice for the school.

Net profit compound growth rate of 14.5%, valuation attractive

We expect the company's FY23E revenue to be 1.88 billion, an increase of 11.5% year-on-year. It is estimated that the net profit of FY23E is 640 million, an increase of 13.2% over the same period last year, and the compound growth rate of net profit for three years is 14.5%, which is mainly driven by endogenous growth. The company is now valued at a price-to-earnings ratio of 4.7x / 4.1x of FY23E/FY24E, which does not match profit growth. We have scrolled the target price to 7 times FY23E's earnings and raised it to HK $4.85, maintaining our buy rating.

Investment risk

The uncertainty of choosing to be a "for-profit" school and the uncertainty of the number of places given by the government to private application schools.