According to the Frost Sullivan report, Jiahong Education is the largest private college education institution and the fourth largest private formal higher education institution in Zhejiang Province according to the total number of students in 2017. The Group controls and operates two schools, long March College and Lean Middle School, which provide tertiary education and non-compulsory private education for senior high school students respectively. In addition, the group operates a joint venture school, the School of Information Business in Henan Province, China (Jiahong holding Group holds 65.0% and Zhongyuan Institute of Technology holds the remaining 35.0%), which mainly provides formal undergraduate and junior college education. In the 2018 / 2019 academic year, the group has a total of 32068 students.
Sino-Thai point of view:
China's private higher education is developing rapidly, and the group is in a leading position in Zhejiang Province: from 2017 to 2022, the total income of the private higher education industry is expected to increase from 120 billion yuan to 180 billion yuan, with a compound annual growth rate of 9.5 percent, according to Frost Sullivan report. In the same period, the total income of private higher education in Zhejiang grew at a compound annual rate of 9.2%. As of 2017, the total income of Zhejiang private higher education industry accounted for about 6.7% of the total income of China's private higher education industry. There are 36 private universities and colleges in Zhejiang, enrolling 313000 students. The market of private colleges in Zhejiang is quite concentrated. By the end of 2017, the top five participants in enrollment accounted for 59.4% of the market share. Long March College ranked first in 2017, accounting for 16.3% of the market for private colleges. In addition, the Zhejiang government attaches great importance to the development of private higher education and has promulgated a number of policies to promote private education, including the "measures for the implementation of Zhejiang Public Finance to support the Development of Private higher Education", which is expected to promote the development of private higher education market.
In terms of operating performance: from 2016 to 2018, the operating income of Jiahong Education was RMB 160 million, RMB 170 million, and RMB 300 million respectively. The substantial increase in 2018 is mainly due to (1) the financial performance of the School of Information Business incorporated into the Group on July 6, 2018, (2) the increase in tuition and accommodation fees of long March College, and (3) the increase in tuition income of Lean Middle School. In 2016 and 2017, the gross profit margin remained relatively stable at 59.5%. At the beginning of 2018, the gross profit margin of the two schools increased to 62%, but the average gross profit margin fell to 53.6% due to the incorporation of the information business school with a relatively low gross profit margin of 51%. The net profit margin was 84.6%, 110.8% and 95.0%, respectively. The increase in 2017 was mainly due to the increase in profits of joint ventures and the decrease in income tax expenses. The decline in 2018 is mainly due to the increase in operating income due to the consolidation of the School of Information Business.
Valuation: based on 1.6 billion shares after the global public offering, the company has a market capitalization of HK $24 billion to HK $3.07 billion, which is lower than its Hong Kong counterparts. The company's price-to-earnings ratio is about 7.3-9.4 times, which is lower than the industry average; the price-to-book ratio is about 1.47-1.70 times, which is lower than the industry average. In terms of profitability, the 18-year ROE and ROA were 22.6% and 16.2% respectively, higher than the industry average. Considering the company's industry status, performance and valuation, we give it a score of 62, with a rating of "neutral".
Risk hints: (1) market competition risk (2) changes in laws and regulations of China's private education industry (3) the risk of failure to successfully integrate acquisition business