Revenue from the main business increased 13.4%, and there was plenty of cash on hand. The total revenue of Xinhua Education FY2019 was 553 million yuan (+15.8%), and the main business revenue was 438 million yuan (+13.4%). Among them, income from tuition fees was 392 million yuan (14.76%), income from accommodation expenses was 46 million yuan (2.69%), and revenue from services such as logistics training was 57.1 million yuan (+11.2%). The adjusted net profit was $296 million (+14.4%). The increase in income is mainly due to an increase in the number of students enrolled and the average tuition fee. The company has about 1.4 billion yuan in cash and cash equivalents, and has sufficient capital reserves.
The company operates 4 schools, increasing both the number of new recruits and the number of students enrolled. 12,500 new full-time students were recruited (+41.1%). Among them, there were 10,200 visitors from the original school (+15.6%) and 2,291 from Hongshan University. The total number of students enrolled in the company exceeded 45,200 (+30.2%), including 28,900 from Xinhua University (-0.19%), 5,583 from Xinhua School (+5.94%), 1,751 from the School of Clinical Medicine (+204%), and 9,054 from Hongshan University. The number of clinical medical school students has doubled, and the company's ability to integrate mergers and acquisitions is expected to be further highlighted.
Tuition fees are rising steadily, and profitability continues to improve. Tuition fees for four-year undergraduate courses at Xinhua University were raised to $19,800-23,800; tuition fees for continuing education courses were raised to 2,400-11,900 yuan; tuition fees for general college courses at Xinhua School were raised to 9,000-11,400 yuan; tuition fees for the other two schools remained unchanged. The company's return on net assets in 2019 reached 11.3% (+0.4pct), and the gross profit margin was 59.7%. Stable profitability showed the company's brand effect and content building effect.
Hongshan University was successfully acquired, and a breakthrough was achieved in epitaxial mergers and acquisitions. In 2019, Xinhua Education officially acquired Hongshan College of Nanjing University of Finance and Economics to provide undergraduate education. The company continued to implement outreach development plans focusing on medicine and new business in 2019, showing its ability to integrate high-quality resources. Taking into account the 488 million yuan of cash advance paid by the company, the company had about 1.8 billion yuan in cash at the end of 19. Furthermore, the agreement between the company and ICBC is intended to provide a total of no less than RMB 5 billion in credit support over the next 5 years.
Maintain a “buy” rating.
Due to the impact of the company's temporary suspension of the acquisition of Haiyuan University, we lowered our adjusted net profit forecast for 20-21 to $326/357 million, and added the adjusted net profit forecast for 22 to 389 million yuan. Net profit growth rates in 20-22 were 9.97%/9.58%/9.08%, respectively. EV/EBITDA was 5x in 2020. We believe that the company's internal extended growth can be expected to maintain its “buy” rating.
Risk warning: declining teaching quality, changes in education policies, and outreach expansion strategies falling short of expectations.