A leading private higher education group in South China that mainly specializes in science and technology. Huali University Group currently has 3 Guangzhou schools: Huali College (undergraduate), Huali Vocational College (college), and Huali Technician College (technician). Huali College and Huali Vocational College (Technician) account for 44.1% and 38.7% of science and technology majors respectively, with distinct characteristics in science and technology. By the end of 2018, the Group was the second largest private vocational education group and the fourth largest private higher education group in South China.
FY19 Group's revenue was 675 million yuan, an increase of 11.0%; Guimu's net profit was 223 million yuan, an increase of 15.4% over the same period. As of February 2020, the total number of students enrolled in the Group was 45,600. The rapid growth in the number of undergraduates and the increase in tuition fees have been the main driving forces of the Group's growth in recent years.
The compound annual growth rate of students enrolled in the 2017/18 to 2019/20 academic year was 5.2%. Among them, the number of undergraduate students (students enrolled at Huali University) reached a compound annual growth rate of 17.0% during the same period. As of February 2020, there was 17,800 students enrolled at Huali University. There is still great potential for growth in the future. The average tuition fees for students at FY19 Huali College, Huali Vocational College, and Huali Technician College were 2.1, 1.6, and 11,000 yuan/year respectively, up 11.6%, 2.5%, and 3.4% respectively. The average tuition fee for undergraduate students increased the fastest. FY1H20 Group paid 61.62 million yuan in dividends, accounting for 44.6% of FY1H20's net profit. The division of labor ratio ranked among listed companies in Higher Education.
The integration of industry and education and collaboration between colleges and universities enhance the quality and appeal of running schools. 1) As of August 2019, the Group has established internship bases with more than 800 companies in the Pearl River Delta and cooperated with 18 companies to launch joint school-enterprise courses. 2) Huali Technician College, Huali Vocational College and Huali College collaborated to offer dual diploma courses to enhance the appeal of running schools. 3) The initial employment rates of students from Huali University, Huali Vocational College, and Huali Technician College reached 95.9%, 93.5%, and 98.4% respectively in the 2017/18 academic year. The average minimum admission line for Huali College in the past 5 years exceeded the provincial control line by more than 15 points.
Campus expansion and new school construction are progressing steadily, and endogenous growth can be expected in the future. 1) The Huali College expansion project was completed in 2020 H2, which can add 2,200 new students; 2) Huali Vocational College's two-phase expansion project is expected to be completed in 2020 H2, with a new student capacity of 3,900; 3) The second phase of the new construction project of Jiangmen College is expected to be completed in 2021H1, with an additional capacity of 8100 students. After the completion of the project, it is estimated that the group's schools will be able to accommodate 42,000 students after completion of the project, an increase of 50.6% over the 2018/19 school year. 4) Starting in 2018, enrollment at Huali Technician College declined from high school to middle school, bringing incremental room for the Group's revenue.
The Greater Bay Area is moving towards high-end manufacturing, and the market space for private higher education in Guangdong Province is vast. As a province with a large economy and population, the gross enrolment rate for higher education in 2018 was only 42.4%, lower than the national average of 48.1%, and the higher education market space is broad. The “Implementation Opinions of the People's Government of Guangdong Province on Implementation<中国制造 2025>” lists the next-generation information technology industry, advanced equipment manufacturing, new materials industry, and biomedical industry as four key areas of development in Guangdong Province. Industrial upgrading and gross enrolment rate increases have expanded the demand for science and technology talents in the Greater Bay Area.
Profit forecast: Without considering mergers and acquisitions, revenue for fiscal years 2020 and 2021 is expected to be $809 million and $996 million, up 19.9% and 18.2% respectively. Adjusted net profit is $322 and 389 million respectively, up 26.9% and 21.1% respectively. Corresponding PE is 9.9 and 8.2 times respectively. The corresponding PE is 9.9 and 8.2 times respectively, with initial coverage, giving a “buy” rating, with a target price of HK$3.90.
Risk warning: The implementing regulations of the Civil Promotion Law have not yet been implemented, and the increase in undergraduate fees falls short of expectations