Revenue for the first half of 2023 increased 22.2% year over year, in line with expectations

Jianqiao Education achieved steady revenue growth in the first half of the year, with a year-on-year increase of 22.2% to 50 billion yuan (RMB, same below). Among them, tuition revenue increased by 18.6% year on year, and accommodation fees increased by 41.6% year on year this year when there were refunds in the same period last year. Benefiting from the increase in campus utilization, the half-year gross margin increased slightly to 68.5%, a half-year high. Thanks to reduced management expenses and the apparent scale effect, sales and administrative expenses as a share of revenue fell from 21.1% in the first half of last year to 17.5% in the same period this year. Net profit for the first half of the year was 180 million, up 37.8% year on year, with a net profit margin of 37.1%. The company's capital structure continued to be optimized. In the first half of the year, interest-bearing debt fell 6% to 760 million; interest rates on weighted loans fell from 4.20% to 3.85%. The company announced a dividend of HK$0.1 per share, with a dividend rate of 20%.

Enhance the ability to run schools and expand regional advantages

There are 24,000 students enrolled in the 2022/2023 academic year, and the total enrollment plan for the 2023/24 academic year is 7,800. We expect the number of students enrolled to rise to 26,000, and the utilization rate will further increase. This year, Jianqiao University added undergraduate majors in primary education and digital economics; 40% of the school's majors were listed as first-class undergraduate majors in Shanghai; in the national ranking of applied majors, about 3/4 of the majors ranked in the top 20 in the country. According to the company, the employment rate for 2022 graduates is 98.9%, and 66% of graduates are employed in Shanghai.

In order to further expand the location advantage of bridge construction in Lingang, Pudong, the fourth phase of the campus expansion project will build a school building, a multi-purpose R&D center, and three talent apartments, and in-depth cooperation with enterprises in the Lingang New Area to achieve integrated development of the Industrial and Education City. With a total investment of about 350 million dollars, the project will be completed in September 2024. We expect FY23E-FY24E to have an annual capital expenditure of around 200 million yuan.

Target price raised to HK$6.20

Operating expenses for the first half of the year were lower than expected. We lowered FY23E/24E operating expenses by 8.3%/5.7%; fine-tuned the FY23E/FY24E net profit forecast to 280 million/320 million yuan, an increase of 24.2%/14.1% over the previous year. The company maintained a 30% dividend rate throughout the year, and the corresponding dividend rate was 6.0%-7.0%. The actual valuation is 5.2/4.6 times the FY23E/FY24E price-earnings ratio. We raised the target price to HK$6.20, corresponding to 8 times the FY23E price-earnings ratio.

Investment risk

1) Enrollment fell short of expectations; 2) Campus expansion fell short of expectations; 3) Vocational education policy risks.