Enrollment in the 24th academic year increased year on year, professional layout continued to be optimized, and brand strength continued to improve
Zhonghui Group's FY23 achieved revenue of 1,973 billion yuan (yoy +17.0%), and the number of students enrolled reached 86,000 (yoy +11.0%), reaching a new high. Wimu's net profit reached 618 million yuan, yoy +9.0%; adjusted net profit reached 668 million yuan, yoy +15.3%; and the dividend ratio remained at 30%. The company continues to optimize its professional layout, deepen the integration of industry and education and school-enterprise cooperation, and build a high-quality reputation for running schools, driving the number of new students enrolled in the 24th academic year to increase by 22.6% year on year, the number of enrolled students increased 15.9% year on year, and steady growth in endogenous students. We expect the net profit of FY24/FY25/FY26 to be $735/709/778 million respectively. WACC will be raised from 15.80% to 15.93% in line with market changes. Based on DCF, the target price is HK$6.23 (a sustainable growth rate of 1%, HKD/RMB 0.92). Maintain “buying.”
Optimizing professional layout to promote the improvement of employment quality, and continuous breakthroughs in academic quotas and enrollment, the new high company closely follows the pace of industrial development in the Guangdong-Hong Kong-Macao Greater Bay Area and the Cheng-Chongqing Economic Zone. It has targeted new majors with strong demand for talents such as artificial intelligence technology applications, smart car technology, nursing, etc., and cooperates with well-known enterprises in the industry to build industrial colleges through integrated industry and education, deepen industry-oriented talent training, ensure high-quality exports of graduates, and promote the continuous improvement of the company's brand strength. The number of students enrolled in FY23's schools reached 86,000, exceeding our previous forecast (840,000). As of October 13, '23, the number of new students reported in the company's 24th academic year increased by 22.6% year on year to 38,000, and the number of enrolled students increased 15.9% year on year to 95,000, higher than our previous forecast (88,000). Based on this, we raised FY24-25's revenue forecast to $22.81/24.63 billion (previous value: $21.71/23.90 billion), and increased the revenue forecast for FY26 to $2,650 million.
The increase in the number of new students may lead to an increase in capital expenditure
Previously, we expected the company's capital expenditure for FY24-25 to remain around 300 million yuan. Considering the rapid growth of the company's new students in the 24th academic year, we expect that the company may accelerate construction related to campus expansion and school building renovation in the next two years, so we raised the capital expenditure forecast for FY24-25 to about 500 million yuan.
Target price HK$6.23, maintain “buying”
Previously, we expected the company's schools to gradually complete for-profit registration with FY24 and pay income tax at a tax rate of about 15%. However, considering that the Sichuan and Guangdong provinces where the company's schools are currently located have not introduced profit registration rules, we have lowered the FY24 income tax rate assumption from 10% to 0.2%. We expect the net profit of Zhonghui FY24/FY25/FY26 to be $735/709/778 million, raising WACC from 15.80% to 15.93% based on market changes. The target price is HK$6.23 based on DCF (sustainable growth rate of 1%, HKD/RMB 0.92, corresponding to 8.90x FY24 PE; previous value: HK$6.31). Maintain “buying.”
Risk warning: The number of students enrolled has not increased as expected, the competent authorities have controlled tuition fees, and for-profit registration is progressing slowly.