The company's tertiary education quota for the 2023/24 academic year increased by 16% year on year, with undergraduate and college students increasing by 10%/56%, supporting steady growth in performance. The company's current stock price is 7.3 times that of PE in 2023, which is at a low level in the past three years, and has a high margin of safety. At the same time, favorable policies for vocational education have been frequent in recent years. While promoting industrial development, the company is also expected to gradually increase investment confidence in the capital market. As a leader in higher vocational education, the company is expected to benefit positively, driving both performance and valuation increases. Based on the company's current dividend rate of 5.4%, we believe that the current investment is relatively cost-effective and maintains the company's “buy” rating.
The number of students has continued to increase, promoting steady improvement in performance. The company announced that in the 2023/24 academic year, enrollment in institutions of higher learning within the group increased 16% year over year, an increase of 13,000 over the previous academic year. Among them, undergraduate programs increased by 10% and college places by 56%. The main reasons for the company's continuous sharp increase in student enrollment in recent years are:
(1) In order to improve the skills and quality of workers and release talent dividends, the country continues to expand the scale of higher and vocational education; (2) students have a strong demand for higher education, and the number of applicants for the college entrance examination continues to grow. The company's employment-oriented high-quality education is particularly popular among students; (3) the construction of new campuses and the expansion of existing campuses has met the increase in scale and quality. Driven by continued growth in enrollment and campus expansion, the company's internal student performance is expected to improve steadily in the future.
There are many favorable policies in the field of vocational education, promoting industrial development while boosting market confidence. Following the “Vocational Education Law” and “Opinions on Promoting the High-Quality Development of Modern Vocational Education”, in June 2023, eight departments including the National Development and Reform Commission and the Ministry of Education jointly issued the “Implementation Plan for the Empowerment and Enhancement of the Integration of Obstetrics and Education in Vocational Education (2023-2025)”, which focuses on the field of integration of obstetrics and education, providing more full support to schools and enterprises. Among them, the policy's subsidy support for integrated maternity and education projects in schools (the amount of support for higher vocational colleges and applied undergraduate colleges is not more than 80 million yuan, and the amount of support for each secondary vocational college is not more than 30 million yuan) is expected to directly benefit the company's development. The policy's support and affirmation for the participation of social forces in vocational education, as well as multi-departmental and comprehensive support for the integration of maternity and education, once again reflect the country's support and encouragement in the field of vocational education, and is also expected to enhance the capital market's confidence in investing in vocational education.
The company's current valuation has a high margin of safety, and at the same time, high dividends bring a high cost performance ratio for investment. The company's current stock price is 7.4 times PE corresponding to 2023 (based on the forecast of CITIC Securities Research Department), which is below the 10% quartile of Forward PE in the past three years, only higher than the company's historical low valuation of 6 times PE 22%. Considering that the company's profit is expected to maintain more than double digit growth in 2023-25, the current valuation margin is high. At the same time, based on the dividend rate corresponding to the 2023 mid-term dividend of 40%, the company's current dividend rate is 5.4%, which also has a high cost performance ratio for investment.
Risk factors: classification registration did not advance as expected; the integration and improvement of new school management fell short of expectations; the increase in the number of students fell short of expectations; changes in industry policies, etc.
Investment advice: The company's academic year 2023/24 academic year continues to grow, supporting the steady improvement of the company's performance. We maintain our core net profit forecast for FY23-25 at 19.8/22.4/$2.48 billion. Comprehensive company valuation centers for the past three years (16 times PE) and comparable higher education companies (Hope Education, China Science and Technology, etc.) in 2023 (5 to 6 times PE). Considering the company's leading position as an industry leader and good liquidity, it gave the company 10 times PE in 2023, maintained a target price of HK$9, and maintained a “buy” rating.