Key points of investment:
The company is a leading vocational education company in China and is at the forefront of scale in the industry. We expect the company's growth to be stable. As the conversion of the company's schools to profit steadily progresses, we believe that the company's policy risk valuation discounts are expected to narrow, and the company's valuation is expected to continue to recover.
The company is a leader in vocational education
The company operates across China, Australia and the UK, focusing on providing quality education through innovation. As of the end of February 2023, the company's school network consists of 12 schools located in China, a higher education school in Sydney, Australia, and an American and British double degree university located in London, England. The company had more than 300,000 students enrolled at the end of FY2022, making it the listed higher and secondary vocational education group with the largest number of students enrolled in China.
The vocational education policy continues to be favorable. The transformation of companies into for-profit schools has been steadily advancing. The state has always encouraged and supported enterprises and other social forces to set up vocational schools, requires governments at all levels to include the development of vocational education in national economic and social development plans, and requires financial institutions to provide necessary support on the financing side. As of the end of February 2023, the conversion of a total of 3 of the company's schools was still ongoing, and the company's 7 other schools located in China were still not required to run for election.
The excellent quality of running schools has boosted the number of students and income
The company closely follows the development direction of the times and always provides students with high-quality employment-oriented courses, which have been widely welcomed by students. The company provided sufficient capacity for scale growth through the opening of new schools, the use of new campuses and campus expansion, and the number of new students and current students continued to break through new highs. The number of people enrolled in the company increased from 121,300 in FY2018 to 304,500 in FY2022. Revenue also increased from $1,295 million in FY2018 to $4.756 billion in FY2022.
Profit Forecasts, Valuations, and Ratings
We expect the company's revenue for 2023-2025 to be 55.89, 61.22, and 6.754 billion yuan respectively, with a year-on-year growth rate of 17.52%, 9.52% and 10.33%; net profit from the return mother's net profit of 20.75, 23.87 and 2,696 billion yuan respectively; the year-on-year growth rates are 12.48%, 15.02%, and 12.96% EPS respectively; 0.81, 0.94 and 1.06 yuan/share, respectively, with a 3-year CAGR of 19.60%. The DCF absolute valuation method measured the company's value per share of 8.69 HKD, which is 5.27 times the company's average PE in 2024. Considering the company's size advantage, liquidity advantage and stable growth ability, referring to the company's growth, we gave the company 12 times PE in 2023, with a target price of 10.68 HKD, corresponding to the HKD exchange rate of 0.9141, covering the “buy” rating for the first time.
Risk warning: 1. The transition to for-profit schools falls short of expectations; 2. Macroeconomic fluctuations; 3. Risk of worsening competition; 4. Risk of declining teaching quality