The Zhitong Finance App learned that according to a research report released by CICC, it maintained the “outperform the industry” rating of China Education Holdings (00839) and raised the 2024 fiscal year revenue forecast by 5% to 6.46 billion yuan in view of the increase in campus capacity; considering rising financing costs, the adjusted net profit forecast for the 2024 fiscal year was lowered by 12% to 2.10 billion yuan. Introduce the 2025 revenue/adjusted net profit forecast of $7.43 billion /$2.31 billion, with a target price of HK$9.5 billion. The company's revenue for fiscal year 2023 was in line with the market's unanimous expectations, and the profit was slightly lower than the market's unanimous expectations.

The main views of CICC are as follows:

The basic market remains resilient.

The company's revenue for fiscal year 2023 increased 18% year on year, with the number of current students contributing about 10% (according to management performance disclosure); in the 2023/24 academic year, the number of full-time freshman registrations in the company increased 17% year over year to 97,000. As of August 2023, the number of full-time students enrolled increased 7% year on year to 248,000. At the employment level, the number of companies' school-enterprise cooperation during the reporting period increased by 41 to 3,516, and its schools sent 72,000 applied graduates, an increase of 16% over the previous year. At the professional level, during the period, the company opened a total of 372 applied undergraduate majors at the higher vocational education level, focusing on intelligent manufacturing, digital creativity, virtual reality, etc., an increase of 13 over the previous year; 182 specialized majors, an increase of 13 over the previous year; and 205 continuing education majors, an increase of 13 over the previous year. In terms of campuses, during the reporting period, the third phase of construction of the new campus of Zhaoqing School in Guangdong Province progressed smoothly; Shandong schools officially began construction of a new campus in Yantai City with government support. The first phase of the new campus has a planned area of more than 700 acres and is scheduled to be put into use in the 2024/25 school year (according to the company's announcement). Looking ahead to the next three years, the bank expects the company's revenue to achieve a compound growth rate of 15% due to steady school quota growth and improved registration rates.

Promoting campus construction and rising financing costs, the pace of profit release has been delayed.

In fiscal year 2023, the company's gross profit margin was 56.3%, down 1.6 percentage points year on year, mainly due to increased personnel remuneration and construction investment; adjusted net profit increased 6% year on year to 1.91 billion yuan, corresponding profit margin was 34%, down 3.9 percentage points year on year, mainly due to high financing costs in the high interest rate environment of the US dollar, which increased 58 million yuan year on year. Management said that as of the end of August 2023, the company's US dollar loan balance was about 200 million US dollars, accounting for 17% of the total loan amount, and reasonable measures to control financing costs will be considered in the future. In terms of cash reserves, as of the end of August 2023, the company had sufficient cash in hand, reaching 5.8 billion yuan; in fiscal year 2023, the company spent 2.64 billion yuan on campus expansion and other capital expenses. During the period, considering the decline in the number of students enrolled in a secondary school due to natural disasters and the epidemic, the company accrued 458 million yuan in book impairment, accounting for 1.3% of the Group's total assets. The bank expects that the company's adjusted net profit may achieve a compound growth rate of 10% in the next three years.

Risk warning: Higher education industry policies have exceeded expectations; enrollment and tuition fees have fallen short of expectations.