Performance summary: The company achieved revenue of 440 million yuan in 2019, an increase of 13.4% over the previous year, achieved net profit of 270 million yuan, an increase of 5.7% over the previous year, and adjusted net profit of 300 million yuan increased 14.4% year on year.
Performance is growing steadily, the number of students continues to increase, and profits at Redhill College are combined to drive profit growth. The steady increase in the number of students enrolled and tuition fees drove the company to achieve tuition/accommodation revenue of 390 million yuan/45.83 million yuan in 2019, an increase of 14.7%/2.8% respectively over the previous year. The number of new full-time students enrolled by the company in the 2019/2020 academic year was 12,493, an increase of 41.1% over 2018. As of December 31, 2019, the total number of students enrolled reached 45,244, an increase of 30.2% over the previous year. Among them, the students enrolled in Xinhua University/Xinhua School/Clinical Medicine School were 28,856, 5583, 1,751 respectively, up -0.2%/6%/205%, respectively, and Hongshan University had 9054 students enrolled.
In terms of expenses, the sales expense ratio increased to 1.8% (yoy+0.4ppt) as admissions and publicity efforts increased to 1.8% (yoy+0.4ppt), and the management cost rate increased to 21.5% (yoy+6.5ppt) due to improved quality of operation and the introduction of high-level talent expenses and expenses related to mergers and acquisitions (yoy+6.5ppt). At the same time, the adjusted net profit of 300 million yuan increased 14.4% year-on-year, and the growth rate slightly exceeded revenue.
Outreach mergers and acquisitions progressed in an orderly manner, and campus expansion capacity increased: the company completed the merger and acquisition of Hongshan University in April 2019. Additionally, it plans to acquire Haiyuan College of Kunming Medical University and Kunming Health School through cash payments and issuance of shares. In the 2018-2019 academic year, Haiyuan University has about 1,2026 students enrolled, with tuition fees of about 17,000-25,000 yuan. In the 2018-2019 school year, Kunming Health School had about 6,247 students enrolled, and the tuition fee was about 6,000 yuan/academic year. In 2018, Haiyuan University and Kunming Health School achieved a total revenue of 301 million yuan, an increase of 20% over the previous year, net profit of 120 million yuan, an increase of 51% over the previous year, all achieving a relatively rapid performance growth rate. The company plans to expand the clinical medical college campus in the core area of Hefei Binhu Science City. The first phase is expected to be put into use in September 2021, and is expected to increase capacity by 5,000 acres. Furthermore, the company announced in July 2019 that it plans to purchase 950 acres of educational land for the construction of a new campus of Hongshan University for the construction of a new campus of Hongshan University. Further expand the space for increasing the number of university places.
High-quality private higher education groups with plenty of cash on hand are expected to continue to benefit from industry integration+stable employment trends. As a representative of a domestic high-quality higher education group, the company has industry-leading medical school resources, stable endogenous performance, and has continued to promote high-quality targeted mergers and acquisitions since listing. The company had 1.4 billion in cash on its account at the end of the reporting period. The abundant cash provided a solid foundation for epitaxial and endogenous expansion, and the country's stable employment orientation is clear. Furthermore, in 2020, the country plans to increase its capacity by 184%. The favorable policy may directly reflect a 100%-200% increase in enrollment, which is expected to support the company's sustainable growth in performance.
Profit prediction and rating: Since the pace of mergers and acquisitions of the company Haiyuan University and Kunming Health School has slowed down compared to previous expectations, the merger of the two schools is not considered yet, and the profit forecast results have been lowered. It is estimated that the net profit for 2020-2022 will be 300 million/330 million/360 million yuan respectively, and the corresponding PE will be 10X/9X/9X respectively, maintaining the “buy” rating.
Risk warning: Mergers and acquisitions and the transfer of independent colleges are progressing or falling short of expectations, campus expansion or falling short of expectations, policy-level risks, etc.