The Zhitong Finance App learned that on August 3, Huaxi Securities released a research report stating that for the first time, it covered China Chunlai (01969) a “increase in holdings” rating. The company's revenue for the 2023-2025 fiscal year is estimated to be $1,59/18.7/2.34 billion, respectively, and net profit from the parent company is $6.2/78/1.01 billion, and earnings per share of $0.52/0.65/0.84, corresponding to the closing price of HK$5.26 (HKD to RMB 0.9111:1) on August 2, 2023, and PE of 9.26/7.37/5.69X respectively. The implementation of quota increases and the implementation plan for the integration of maternity education has raised expectations for the vocational education industry. The vocational education industry is about to welcome policy dividends, and China is expected to benefit first as the leader of private higher education in central China in the spring. At the same time, the company is actively expanding institutions. Combined with favorable maternity and education integration policies, the difficulty of financing has been reduced, and alpha attributes have gradually become apparent.

The main views of Huaxi Securities are as follows:

Leading private higher education in central China, colleges and universities accelerate expansion

The company is the leader in private general higher education in central China. According to Frost & Sullivan data, according to the total number of students enrolled in the 2017/2018 academic year, the company ranked first in central China and fourth in the country among private higher education providers. Since its listing, the Group has begun to expand at an accelerated pace. Currently, there are six universities including Shangqiu University, Anyang University, Shangqiu University School of Applied Science and Technology, Health College, Jingzhou University, and Yuanyang University Yuanyang Campus. The group is in the process of acquiring the rights of the organizers of Tianping University of Science and Technology of Suzhou University of Science and Technology, and according to Gaochun's announcement, the first phase of Tianping University's Nanjing Gaochun Campus construction has entered the clean-up and inspection phase and is scheduled to be put into use during the year.

The number of places continues to grow, and revenue and profitability have both increased

Following a sharp increase of 88.8% in the number of undergraduate and undergraduate students in 2023/2024 last year, the number of places for undergraduate and specialized education students continued to increase by about 9,600 this year, an increase of 27.6% over the previous year. Among them, undergraduate and specialist student places increased by about 14.5%, and places for specialist courses increased by about 61.9%. The agency believes that the company has strong alpha attributes and strong endogenous growth momentum. The scale effect of the Group's rapid expansion showed that gross margin and net margin levels improved significantly. Gross margin increased from 58.10% of FY18 to 63.15% of FY22; net interest rate increased from 24.39% of FY18 to 42.18% of FY22. It is optimistic that the company will achieve further breakthroughs in profitability under continuous expansion. The new policy in Jiangsu Province drastically relaxes tuition fees for private colleges and universities, and it is expected that Tianping University will drive up the group's revenue and profit margins after enrolling students in Nanjing for the first term.

Integrated maternity and education policy support to reduce financing costs

On June 13, the National Development and Reform Commission and other departments jointly issued the “Implementation Plan for Empowering and Enhancing the Integration of Vocational Education, Industry and Education (2023-2025), which states that they will prioritize or facilitate integrated maternity and education enterprises with good credit evaluation results in various areas such as listing financing, government financial support, industrial support policies, merit reviews, and handling of government matters. According to the company announcement, China Chunlai has reached a strategic cooperation with the Bank of China. The Bank of China will provide it with 2 billion yuan of credit support and other financial service facilities, and Shangqiu University and ICBC have reached a 60 million yuan loan agreement, and Jingzhou University and Everbright Bank have signed a 40 million yuan credit line agreement. Under the impetus of the industry-education integration policy, the company's financing costs may be further reduced.

Risk warning:Campus construction falls short of expectations; implementation of policies falls short of expectations; financial support implementation risks.