Steady growth in annual results, in line with expectations
In 2019, the company achieved revenue of 497 million yuan (+28.8%) and net profit of 271 million yuan (+5.7%). 2019FY gross profit margin 59.7% (-0.01%), net profit margin 54.4% (-3.82%).
The sales, management and finance expense ratios were 1.58% (+0.17%), 18.94% (+5.77%), and 0.17% (+0.15%), respectively. The company's net interest rate declined, mainly affected by expenses related to mergers and acquisitions activities. The company is operating steadily and its overall performance is in line with expectations.
Tuition fees and admissions have been increased
The company has a total of four schools. As of December 31, 2019, the total number of students enrolled in the company was 45,244, an increase of 30.2% over 34,756 in the same period last year. In the 2019/20 academic year, the four-year undergraduate fees at Xinhua University were raised to 19800-23800 yuan, continuing education was raised to 2,400-11900 yuan; general secondary schools at Xinhua School were raised to 9,000-11,400 yuan.
Policy dividends help the company continue to expand
The company's four schools cover vocational, undergraduate, and postgraduate schools. It is expected to expand rapidly in the context of the country encouraging the development of vocational education, special upgrades, and the expansion of postgraduate enrollment. Among them, Hongshan University and the School of Clinical Medicine are colleges specializing in finance and economics and medicine, respectively. They have outstanding professional characteristics and superior geographical locations. The room for improving high-quality assets has a high degree of certainty and is expected to become the main driving force for the company's future development.
Cash sufficient debt is extremely low, and space for extended mergers and acquisitions is worth looking forward to
The company has a low debt ratio, 1.4 billion yuan in cash on hand, and has received high credit support from banks. A healthy balance and debt structure and more cash make the company less pressured on capital expenditure and financial expenses, and there is more room for subsequent expansion. At the end of 2019, the company had 1.4 billion yuan in cash on hand, and has credit support from ICBC of no less than 5 billion yuan over the next five years.
Maintain the “buy rating” and raise the profit forecast for 2022
Based on expectations that the new campus of Redhill College will be put into use in September 2021 and the company's internal student growth potential, we raised 2022 revenue to 860 million yuan (previous value: 640 million yuan) and net profit of 480 million yuan (previous value of 3.9 billion yuan). Maintain the “buy” rating of Xinhua Education Group and a reasonable valuation range of HK$3.50 to HK$4.07.
Risk warning:
The construction and enrollment progress of the company's new campus fell short of expectations; negative incidents occurred in school operation and management.