2022 results are in line with expectations
Jianqiao Education achieved revenue of 790 million yuan in 2022 (RMB, same below), an increase of 15.6% over the previous year; of this, accommodation income fell 12.8% because students did not stay in school during the pandemic, and the company refunded accommodation expenses of 25 million yuan. The company's gross margin remained strong in 2022, up 2.2 percentage points year over year to 63.9%. During this period, the company's operating expenses rose 37% year on year, and sales and administrative expenses accounted for 25.4% of revenue, which was higher than expected. It was mainly an increase in payroll expenses and one-time expenses related to logistics and epidemic prevention.
The company's capital structure and financing costs were further optimized, and financial expenses fell 45% in 2022. Net profit of 230 million yuan was achieved during the period, an increase of 25.7% over the previous year, and the net profit margin was 28.5%, which was basically in line with expectations. There were 24,000 students enrolled in the 2022/23 school year, an increase of 9.0%, and the number of undergraduates accounted for 73%. The company paid a year-end dividend of HK$0.1, with an overall payout ratio of 31.4%.
Laying the groundwork for the organization of high-quality vocational education
The company launched the fourth phase of the campus construction plan in December 2022. The fourth phase of the project includes a teaching and training building, three talent apartment buildings, and a multi-purpose R&D center. The new training building and multi-purpose R&D center are conducive to connecting with richer school-enterprise resources and deeply implementing the policy of integrating industry, education, and running schools. The new project not only provides R&D and training scenarios for enterprises, but also provides internships and workplaces for companies and students. According to management, the new school building is expected to receive rewards from users and develop into a new profit model. The total investment for the new project is about 340 million yuan, and it is expected to be put into use in September 2024.
We expect depreciation of fixed assets to rise to $65 million in 2024. The company will make full use of its superior geographical location to create high-quality educational venues integrating education, training and employment for enterprises and students.
Target price increased to HK$5.94
We slightly raised our FY23E revenue forecast by 2.2%, and total operating expenses by 6.3%. Net profit fell 1.7% to $270 million, up 19.1% year over year. The company's business is steady, and we predict that it will maintain double-digit net profit growth in the future; Jianqiao has been converted into a for-profit private college, and the related policy risks are less. The company is expected to maintain a 30% dividend rate, a dividend rate of around 5.5% - 6.5%, and restart share repurchases after the release of results. We rolled the valuation to 8 times the price-earnings ratio of FY23E and raised the target price to HK$5.94.