Incidents:
The Company announced its annual results for the year ended August 31, 2023. In this fiscal year, the company's revenue was 5.616 billion yuan, up 18.1% year on year, gross profit was 3.164 billion yuan, up 14.9% year on year, adjusted net profit was 2,077 billion yuan, up 9.8% year on year. The company owners should account for adjusted net profit of 1,908 billion yuan, up 6.0% year on year. The company's adjusted EBITDA was 3.361 billion yuan, an increase of 17.7% over the previous year. The number of full-time students enrolled in the 2023/24 academic year reached about 97,000, an increase of about 17% over the previous year, of which the number of new students enrolled in full-time higher education reached about 840,000, an increase of about 18% over the previous year; as of August 2023, there were about 248,000 full-time students, an increase of about 7% over the previous year. Among them, there were about 199,000 students enrolled in full-time higher education, an increase of about 13% over the previous year. The company paid a final dividend of 13.53 points, along with an interim dividend. The fiscal year dividend distribution was equivalent to 40% of the net profit attributable to the company owners.
The number of new students and current students is growing steadily. Promoting healthy performance development companies focus on major national strategies, closely follow the trend of industrial upgrading and technological change, accelerate professional transformation and upgrading in member schools, open more majors that meet market needs, and train talents that are in short supply in the market. The company actively promotes region-oriented, industry-oriented, and industry-oriented schools, actively promotes the construction of industrial colleges, and establishes ten modern industrial colleges, including the School of Optoelectronics Industry, the School of E-Commerce Industry, the School of Next-Generation Information Technology Industry, and the School of Digital Innovation. At the same time, it cooperates with hundreds of enterprises to establish off-campus practice bases, which strongly supports student employment. During the reporting period, the number of school-enterprise partnerships held by China Education increased to 3,516, an increase of 41 over the previous fiscal year. Member schools sent 720,000 applied graduates to the community, an increase of 16.1% over the previous fiscal year. The excellent quality of running schools has supported the steady growth of the number of people enrolled in the company and promoted the healthy development of performance.
Profit Forecasts, Valuations, and Ratings
We assume that the company's member schools maintain a steady enrollment trend, and that there is no longer any impairment affecting net profit. The company's revenue for the 2024-2026 fiscal year is estimated to be 64.23, 71.30 and 7.846 billion yuan, respectively, with year-on-year growth rates of 14.37%, 11.01% and 10.04% respectively, net profit of 23.48, 26.70 and 3,011 billion yuan, respectively, year-on-year growth rates of 70.18%, 13.69% and 12.78%, EPS of 0.92, 1.05 and 1.18 yuan/share, and a three-year CAGR of 29.70%. In view of the company's steady growth expectations and attractive dividend rate (about 6% in FY2024), with reference to comparable company valuations, we maintain the company's PE valuation of 12 times that of 2024, with a target price of HK$12.09, corresponding to the HKD exchange rate of 0.9135 and maintain a “buy” rating.
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