Key points of investment
The company's performance showed strong endogenous growth. FY2023H1 adjusted net profit +15% year on year: the company disclosed the fiscal year 2023 semi-annual report on April 27, 2023. FY2023H1 achieved revenue of 2,775 billion yuan, +18% year on year, and adjusted EBITDA of 1.68 billion yuan, +19% year on year, adjusted net profit of 1,045 million yuan, +15% year on year. The company plans to pay an interim cash dividend of RMB 16.4 per share. The dividend amount accounts for about 40% of the company's adjusted net profit attributable to the parent.
The growth of endogenous students in higher education is strong, and there has been a marked recovery in international education. Looking at categories, FY2023H1's higher education revenue was 2.35 billion yuan, +21% year on year, and secondary vocational education revenue was 320 million yuan, -3% year on year, mainly due to the impact of pneumonia, which led to a decline in the number of newly enrolled students. The international education portion earned 107 million yuan, +45% year on year, mainly due to the lifting of overseas entry restrictions and an increase in the number of new students enrolled.
There was a slight decline in gross margin, mainly due to a certain increase in investment in teaching. FY2023H1's gross profit margin was 57.4%, a year-on-year decrease of 1.9 pct, mainly because the company's teaching investment increased to promote the improvement of teaching quality in its schools.
The company is the leading higher education group in China. It has the largest number of students in the industry, and has strong merger and acquisition integration capabilities and management and operation capabilities: since the company went public in 2017, the company has successfully expanded the company's business scale through many mergers and acquisitions. The number of schools in China has grown from 3 to 12, and there are also higher education schools in Australia and the UK. By the end of August 2022, the total number of students enrolled in the company was 304,000, +27% year on year. The number of students enrolled ranked first in the industry. In the 2022/23 school year, the number of new students enrolled in higher education reached 710,000, +48% compared to the previous year. Since listing, the company's ability to integrate mergers and acquisitions and management and operation has been verified.
Mergers and acquisitions or restarts, the company has sufficient cash on its books: On January 10, 2023, the company announced a new round of placement. The net subscription amount was approximately HK$1.6 billion, mainly to expand the school network (including campus development and potential mergers and acquisitions) and working capital purposes. On April 12, 2023, the company announced that it intends to issue inshore RMB 500 million investment-grade secured bonds due in 2026, mainly for the expansion of domestic institutions. By the end of February 2023, the company's bank balance and cash on the books reached about 3.3 billion yuan.
Profit prediction and investment rating: China Education Holdings is a leading enterprise in private colleges and universities in China. It has obvious scale advantages and strong merger and acquisition integration capabilities. Vocational education is the direction China's policy encourages, and sector valuations are expected to continue to recover. We maintain the company's FY2023-2025 net profit of 2.12 billion yuan/2.46 billion yuan/2.88 billion yuan. The latest closing price corresponds to FY2023-FY2025 PE at 7/6/5 times, maintaining the “buy” rating.
Risk warning: repeated epidemics, falling short of expectations in enrollment, policy risks, etc.