The Zhitong Finance app learned that Dongwu Securities published a research report stating that it maintained the “buy” rating of China Education Holdings (00839). The company is a leading enterprise in private colleges and universities in China. It has obvious scale advantages and outstanding operating capacity. Vocational education is the direction encouraged by China's policy, and sector valuations are expected to continue to recover. Considering that the company continues to maintain high-quality investment in improving teaching quality, expenses and expenses may remain at a high level, the bank lowered the company's net profit of FY2024-FY2025 from /2.46 billion yuan/2.88 billion yuan to 2196/2.45 billion yuan. The net profit from FY2026 is estimated to be 2.73 billion yuan.

The main views of Dongwu Securities are as follows:

The company's revenue was +18.1% year-on-year to 5.62 billion yuan, with sufficient cash reserves:

The company disclosed FY2023 results on the evening of November 27, 2023. FY2023 achieved revenue of 5.62 billion yuan, +18.1% year-on-year, adjusted EBITDA of 3.36 billion yuan, +17.7% year-on-year, net profit of 1.38 billion yuan, and adjusted net profit of 1.91 billion yuan, +6% year-on-year. Among them, the adjustment projects were mainly due to the impairment of goodwill of the company's secondary vocational colleges by 395 million yuan. As of the end of August 2023, the company's book cash reserves were 5.8 billion yuan.

The higher education sector grew steadily, and overseas business recovered well:

The Group adjusted its reporting structure this year, merging higher and secondary vocational education into the “domestic market”, and changing the name of the international education section to the “international market”. By sector, FY2023's domestic market revenue was 5.4 billion yuan, 18.2% over the same period last year. The increase was mainly driven by higher vocational education business. The international market revenue was 220 million yuan, +16.4% year-on-year, mainly due to the increase in the number of new entrants, the lifting of entry restrictions after the pandemic, and the recovery of overseas business well.

There was a slight decline in gross margin, mainly due to a certain increase in teaching investment:

The gross profit margin of FY2023 was 56.3%, a year-on-year decrease of 1.6pct, mainly because the company's investment in teachers and teaching increased in order to promote the high-quality development of schools.

The number of new students and current students is growing steadily:

As of the end of August 2023, the total number of full-time students enrolled in the company was 248,000, +7%, of which 199,000 were enrolled in full-time higher education, +13% over the same period last year. In the 2023/24 academic year, the number of full-time registered new students in the company reached 97,000, +17% over the same period, including 84,000 full-time higher education students, +18% over the same period last year.

Increase investment in expansion, and the company has sufficient cash on its books:

On January 10, 2023, the company announced a new round of placement. The net placement subscription amount is approximately $1.4 billion, which is mainly used to expand the university network (including campus development and potential mergers and acquisitions) and the use of working capital. As of the end of August 2023, the amount of unspent proceeds was about 600 million yuan, and the company's book cash reserves were about 5.8 billion yuan.

Risk warning: enrollment falls short of expectations, recurrent epidemics, policy risks, etc.