The number of students reached a new high, and actively promoted the integration of international projects
Zhonghui Group's 1HFY23 achieved revenue of 973 million yuan (yoy +18.3%), which is 50% of our FY23 forecast for the full year. In line with expectations, the revenue of its domestic and overseas divisions increased 17.9/ 67.5% year-on-year respectively; the total number of students enrolled increased 12.2% year over year to 85,603, reaching a new high. Thanks to the increase in the number of students enrolled and the strengthening of cost control, the gross margin of 1HFY23 increased 0.4 pct to 50.6% year on year; the net profit of returning mothers increased 18.9% year on year to about 300 million yuan. We maintain our net profit forecast for FY23/FY24/FY25, which was 632/698/755 million, respectively. Combining market changes, we lowered WACC from 17.05% to 16.39%, and obtained a target price of HK$6.40 based on DCF (previous value of HK$6.37). The sustainable growth rate was 1%, corresponding to 9.99x FY23E PE. Keep “buying.”
Campus expansion progressed steadily, integration of industry and education continued to deepen. The number of students and tuition fees continued to increase 1HFY23 The number of students enrolled in all schools within Zhonghui Group increased year-on-year. Among them, Sichuan schools increased 3,500 students/ 13.3% year-on-year, and Guangdong schools increased 5,400 students/ 11.0% year-on-year.
In the 22/23 academic year, the average tuition fee for new students in higher and secondary vocational education under the company increased by 500-1,000 yuan and 500-2,000 yuan respectively, achieving a sharp increase in volume and price. 1HFY23 invested 475 million yuan to build new campuses and upgrade existing teaching facilities in Sihui, Zengcheng, Xinhui, Meishan and other places. We expect that after the new campus is completed and put into operation, it will fully meet the needs of students to continue to grow in the next 3-5 years. In addition, the company focuses on the country's talent needs in the fields of big health, e-commerce, digital economy, etc., and further strengthens its vocational education characteristics, which are oriented towards the cultivation of applied skilled talents, by jointly building industrial colleges with well-known enterprises, inducing students to enter schools, and providing students with better quality practical training, internship conditions and employment opportunities in the form of education along the production belt.
The number of international school programs has increased, and integration has been actively promoted at home and abroad
The revenue of 1HFY23's overseas division was 9.67 million yuan, an increase of 67.5% over the previous year. The number of teachers and students participating in overseas inclusion programs has grown rapidly in the past three years, mainly due to the company's continuous acceleration of the introduction of high-quality courses from foreign universities to empower domestic schools, actively developing inclusive overseas classrooms, carrying out double degree programs, and jointly building shared international integrated disciplines. We believe that with the lifting of overseas epidemic restrictions, the company is expected to seize growth opportunities for international students, give full play to the advantages of running international schools, further promote cooperation and integration between domestic and foreign schools, and further enhance the enrollment appeal of group schools.
The target price is HK$6.40, maintaining the “buy”
We maintain our net profit forecast for FY23/FY24/FY25, which was 632/698/755 million, respectively.
Combining market changes, we lowered WACC from 17.05% to 16.39%, and obtained a target price of HK$6.40 based on DCF (previous value of HK$6.37). The sustainable growth rate was 1%, corresponding to 9.99x FY23EPE. Keep “buying.”
Risk warning: The number of students enrolled fell short of expectations, the competent authorities controlled tuition fees, and for-profit registration progressed slowly.