The student structure continues to be optimized, and employment performance is outstanding. Maintaining a high dividend ratio, the new higher education group FY23 achieved revenue of 2.119 billion yuan (yoy +10.3%), net profit of 703 million yuan (yoy +13.4%), and adjusted net profit of 728 million yuan (yoy +10.1%). Revenue and profit are basically in line with our previous expectations. The company maintained a dividend rate of around 50%. The company's share of undergraduate students in the 24th academic year continues to rise, which is expected to drive a steady increase in average student income; however, considering the incremental depreciation and amortization brought about by the continuous strengthening of content construction, we expect FY24-26 gross margin to decline slightly. The estimated net profit for FY24/25/26 is 7.53/8.26/886 million yuan, and the target price based on DCF is 5.15 Hong Kong dollars (WACC:
14.46%, sustainable growth rate 1%, HKD/RMB = 0.92). Maintain “buying.”
The employment rate remains high, and the proportion of undergraduate students continues to rise
The company adheres to the implementation of high-quality employment as the foundation of the school and continues to strengthen employment services. As of August 23, the initial employment rate of the company's 23rd graduates reached 90.65%, an increase of 1.24 percentage points over the previous year. Among them, the number of people employed in famous companies such as the world's top 500, the top 100 national companies, and A-share listed companies increased 67% year on year. High-quality employment has further highlighted the company's brand effect and enrollment appeal, and the quality and structure of the student population continues to be optimized. The total number of students enrolled in the company's schools in the 24th academic year was about 140,000, and the number of new students increased 2.7% year-on-year, of which the share of undergraduate students increased by 3.4 percentage points. We believe that the continued increase in the share of undergraduate students is expected to drive a steady increase in the company's overall average student income.
Investment in teachers and hardware was increased, and gross margin declined slightly year-on-year
FY23 continued to expand investment in high-quality teachers, and teacher costs increased 11% year on year; continued to upgrade campus and upgrade experimental training equipment, and depreciation and amortization increased 19.4% year on year. As the cost growth rate was higher than the revenue side, FY23 gross margin fell 1.0pct to 38.0% year on year. FY23's capital expenditure reached 746 million yuan, slightly higher than our previous forecast (about 600 million yuan), mainly for hardware investment in experimental training rooms, libraries, school buildings, etc., and the upgrading of teaching equipment. Considering that Guizhou schools will enter a concentrated investment period for undergraduate upgrades in the next two years, we have raised the FY24-25 capital expenditure forecast from 5/400 million to 600 million yuan/500 million yuan, and considering incremental depreciation and amortization, we expect FY24-26's gross margin to remain around 36%.
Target price HK$5.15, maintain “buying”
We expect the company's net profit for FY24/25/26 to be $7.53/8.26/886 million. In line with market changes, WACC was raised to 14.46% (previous value: 13.80%), and the target price based on DCF was HK$5.15 (previous value: HK$5.31, sustainable growth rate of 1%, HKD/RMB 0.92). Maintain “buying.”
Risk warning: Authorities are tightening supervision of tuition fee pricing; the number of students enrolled has fallen short of expectations; and the progress of for-profit registration has fallen short of expectations.