The company recently announced that it will merge its overseas education business with NYSE listed company GEHI. After the merger is completed, the entity's valuation is 800 million US dollars. The transaction will fully unlock the value of the company's overseas education business while reducing regulatory risks. Without considering the impact of this transaction, we maintain the company's 2023-25 EPS forecast at HK$2.23/2.48/2.57. Referring to the 2023 valuation level of comparable companies in the education industry (19 times PE for Shiyuan shares, 12 times PE for Kangguan Technology, all of which are Wind's consistent expectations) and the 2023 valuation level of comparable companies in the game industry (Century Huatong 17 times PE, Perfect World 22 times PE, all consistent with Wind's expectations), giving the company 10 times PE in 2023, corresponding to the target price of HK$22, maintenance “Buy” rating.
A merger agreement was signed, and the overseas education business was spun off and listed on the NYSE. The company recently announced that it will merge its overseas education business with GEHI, a company listed on the NYSE. At the same time, the merged entity will be renamed myND.AI. The transaction is expected to be completed by the end of the third quarter of 2023. According to the company announcement, the valuation of the company's overseas education business is 750 million US dollars, the valuation of GEHI is 0.5 billion US dollars, and the valuation of the entity after the merger is completed is 800 million US dollars. After the merger is completed, the company will also hold 72.9% of the shares issued by GEHI, while GEHI will own 100% of the shares of the company's overseas education business subsidiaries.
Fully unlock the value of overseas education business and reduce regulatory risks. 1) This transaction will fully unlock the value of the company's overseas education business, provide it with a new financing platform, enhance the company's overseas education business financing capabilities, and promote business growth. 2) The company's overseas education business is mainly concentrated in the US region. At the same time, the company expects to release a series of AI tablet products in the second half of this year. Against the backdrop of tighter AI regulations and the deepening game between China and the US, this spin-off listing will greatly reduce regulatory uncertainty. 3) In this transaction, GEHI will divest its business in China to further avoid regulatory risks and enhance operational stability.
Outlook: Accelerate AI product development progress, and business synergies are showing. 1) This transaction reflects the company's determination to apply AI to the field of education. The company is expected to step up R&D efforts and advance the development of AI tablet series products. 2) Currently, the company's overseas education business is exploring national project opportunities in Singapore and Southeast Asia, and this merger preserves GEHI's education business in Singapore, and entering the Singapore market through GEHI will better support the development of the company's overseas education business in the region.
Risk factors: macroeconomic pressure; game development falling short of expectations; rising raw material prices; changes in overseas education policies; orders falling short of expectations; increased friction between China and the US.
Profit forecasts, valuations and ratings: The company recently announced that it will merge its overseas education business with GEHI, a NYSE listed company. After the merger is completed, the entity's valuation is 800 million US dollars. The transaction will fully unlock the value of the company's overseas education business while reducing regulatory risks. Without considering the impact of this transaction, we maintain the company's 2023-25 EPS forecast at HK$2.23/2.48/2.57. Referring to the 2023 valuation level of comparable companies in the education industry (19 times PE for Shiyuan shares, 12 times PE for Kangguan Technology, all of which are Wind's consistent expectations) and the 2023 valuation level of comparable companies in the game industry (Century Huatong 17 times PE, Perfect World 22 times PE, all consistent with Wind's expectations), giving the company 10 times PE in 2023, corresponding to the target price of HK$22. Maintain a “buy” rating.