occurrences
China's Xinhua Education FY2019 achieved revenue of 438 million yuan, up 13.4% year on year. Total revenue including other income was 553 million yuan, up 15.8% year on year, net profit of 271 million yuan, up 5.7% year on year. Net profit after adjusting exchange losses and equity incentive expenses was 296 million yuan, a year-on-year growth rate of 14.4%, in line with expectations.
reviews
The company's FY2019 management fee ratio increased 6.5 pct year-on-year mainly due to the increase in equity incentive expenses and M&A project participation fees and professional service fees. The company's other FY2019 revenue was 115 million yuan, an increase of 25.8% over the previous year, and its contribution to net interest rate increased by 2.6 pct. Other income mainly included rent and property management income, service income, government subsidies, etc. Among them, rent and property management income and service income totaled about 58 million yuan. This was not a one-time impact and was sustainable.
The operation of the company's four schools is developing steadily, the number of students enrolled and tuition fees are rising steadily, internal and external linkages, sufficient cash and credit lines, and expansion can be expected.
In terms of endogenous students - ① The company operates four schools, Xinhua University (private undergraduate), Xinhua School (middle school), Clinical Medicine School (independent college), and Hongshan University (independent college). As of 20191231, there were 45,000 students enrolled, an increase of 30.2% over the previous year. ② The average increase in tuition fees for Xinhua School in 2019 was 15.4%, and the tuition fee for full-time undergraduate studies at Xinhua University increased 15.5%. Despite the increase in tuition fees, the registration rate was still good. ③ The first phase of the new campus of the School of Clinical Medicine is expected to be put into use no later than September 1, 2021. The transfer work is included in the 13th Five-Year Plan of the Anhui Provincial Department of Education. It is expected that there will be a lot of room for improvement in the number of students enrolled and the average tuition fee after the transfer is completed in the future. ④ Construction of the new campus of Hongshan College is expected to begin no later than June 30, 2020. It is expected to accommodate 20,000 students. After it is put into use, facility usage fees are expected to be drastically reduced, and profitability is expected to further increase.
In terms of outreach — during the dividend period for the development of vocational education and private colleges, the logic of mergers and acquisitions of colleges and universities still exists. As of 20191231, the company's cash and its equivalents reached RMB 1.4 billion. At the same time, a strategic cooperation agreement was signed with the Hefei branch of the Industrial and Commercial Bank of China. Over the next five years, no less than 5 billion yuan of credit support will be provided with sufficient capital.
Investment advice: We predict that the company's net profit for FY20/21/22 will be 298/3.40/382 million yuan respectively, and the corresponding PE will be 10/9/8x, maintaining the purchase rating.
Risk warning: The final version of the draft for review has not yet been published; there is limited room for increase in student credits; the acquisition has not yet been completed.