Company overview
The company is the leading private higher education institution in Zhejiang Province, China, and also provides secondary education services to senior high school students. it has three schools: long March College (53.62% owned by the company), Lean Middle School and School of Information Business (65% owned by the company). The enrollment in 2018 and 2019 academic year was 10520, 935 and 20613 respectively. Transform from an independent college to a private capital academy of sciences.
FY2016-FY2018, the company's performance grew steadily, with revenues of 162.5 million yuan, 172.0 million yuan and 301.8 million yuan respectively, CAGR36.3%; gross profit of 96.6 million yuan, 102.3 million yuan and 161.8 million yuan respectively, CAGR29.4%,2016 and 2017 gross profit margin stable at 59.5%, falling to 53.6% in 2018 due to substantial increases in consolidated statement, salary and depreciation. The net profit is 137.4 million RMB, 190.6 million RMB and 286.9 million RMB respectively. The high growth of CAGR44.49%, mainly comes from the School of Information Business and makes a contribution.
Industry status and prospects
The enrollment of private higher education in China is increasing, from 5.6 million in 2013 to 6.3 million in 2017, and CAGR3%, expects to further increase to 6.7 million in 2022. The total income of the private higher education industry was 115.1 billion yuan in 2017, accounting for 10.4 percent of the entire higher education industry, and is expected to reach 181.2 billion yuan in 2022, CAGR9.5%.
The average annual tuition and miscellaneous fees of higher education in China have increased to 24704 yuan in Zhejiang Province and 12834 yuan in Henan Province, respectively, which is higher than the national average of 12679 yuan. As the two provinces have liberalized the for-profit private school tuition policy in 2017, proposing independent pricing or implementing market-adjusted prices, it is estimated that the CAGR in 2018-2022 is 8.8% and 7.9% respectively.
Advantages and opportunities
It has a good reputation in Zhejiang Province, has great influence in Henan Province, and has strong growth potential.
Have experience in setting up and managing private schools, expand business operations in different regions, and achieve successful replication.
Strategic location, diversified courses based on market trends, mature school-enterprise cooperation model and practical courses focusing on training provide full employment opportunities for students.
High-quality teaching staff, experienced and tested senior management team.
Weakness and risk
The risk of policy uncertainty such as the Civil Promotion Law, the draft of the Ministry of Education and the draft of the Ministry of Justice may adversely affect the development, operation and management of the school.
The business depends on the market recognition and reputation of the school and group brands.
Business performance depends on whether tuition and accommodation fees can be maintained and raised.
May not be able to successfully implement the growth strategy, effectively manage growth, and miss new business opportunities.
Investment valuation
Based on the prospectus pricing (HK $1.50-HK $1.92) and the 2018 adjusted net profit (217.69 million RMB to HK $1.1352), the company's fully diluted price-to-earnings ratio for 2018 is 9.7112.43 times, which is lower than the industry average and undervalued, so we give IPO a special rating of "5".