New Higher Education Group announced its FY23 annual report. Annual revenue was RMB 2.119 billion, up 10.3% year on year; net profit was RMB 703 million, up 13.4% year on year. Revenue and profit growth are in line with our previous expectations. We believe that the increase in the company's revenue is mainly driven by the Group's steady growth in endogenous growth and the increase in tuition and accommodation fees. New Higher Education Group also announced a year-end dividend of 0.096 yuan per share, along with an interim dividend of 0.119 yuan per share. The annual dividend rate reached 48%.
The student structure continues to be optimized, and the increase in investment in running schools does not change profitability. The New Higher Education Group continued to optimize the enrollment structure in the 22/23 school year. Under the circumstances where the number of students enrolled was basically unchanged (the number of students enrolled in FY23 was 141,000, a slight decrease of 2% from the previous year), the number of undergraduate students increased sharply by 12% to 510,000 over the same period last year, accounting for an increase of 6 percentage points to 36% in the total number of students enrolled. Benefiting from higher tuition fees for undergraduate students, the average tuition fees of the New Higher Education Group reached 15,100 yuan in FY23, an increase of 12.9% over the previous year. In FY23, the Group adhered to a high-quality content development strategy and continued to increase investment in personnel and facilities. Personnel costs increased 10.8% year over year, depreciation and amortization costs increased 17.1% year over year, exceeding revenue growth. New higher education has maintained the basic stability of Maori by optimizing student recruitment institutions and raising the level of tuition fees. The gross profit margin for FY23 was 38%, a slight decrease of 1 percentage point from the previous year. Looking ahead, we believe that with the gradual completion of the Group's core construction and the decline in hardware investment, the increase in main operating costs will slow down, and further increases in gross margin and net profit margin can be expected.
Expenses are strictly controlled, and profit margins remain stable. In FY23, the company continued to optimize the effectiveness of running schools and strictly control expenses. Administration and sales costs maintain a stable share of revenue. Of these, administrative expenses accounted for 4.5%, a slight decrease of 0.1 percentage points. Sales expenses accounted for 1.7%, a slight increase of 0.2 percentage points. The share of all expenses is at the bottom of history.
The classification management of private colleges and universities is gradually being implemented. Northeast School (Harbin Huade University) and Guangxi School (Guangxi Yinghua International Vocational College), a subsidiary of the New Higher Education Group, obtained a transitional school license for for-profit schools in August and December 2022, respectively. Schools in Yunnan and Guizhou are also going through the relevant formalities. We believe that once the group's institutions are registered as profitable, they will enjoy the right to set tuition fees independently. To the greatest extent possible, the increase in tuition fees is market-based adjustments based on the quality of operation of the institutions themselves and the prices of peers. At the same time, since it is a for-profit entity, school shareholders can obtain profits from running the school, and the school's dividends will be more secure.
Maintain the buy rating. Benefiting from New Higher Education Group's high quality education strategy, we believe the company's average tuition fees are expected to maintain a compound annual growth rate of 3.4% in FY24 to FY26. Affected by the increase in interest rates on the company's US dollar syndicated loans, the company's financial costs for FY23 increased 25% year on year. We believe that overseas financing costs will be difficult to reduce in the medium term, so we slightly lowered the company's net profit from the company's net profit for the 24/25 fiscal year to 786/888 million yuan, and increased the net profit for fiscal year 26 by 989 million yuan. We maintained our target price at HK$3.46 to respond to the 68.2% increase and maintain our buying rating.
Risk warning: Tuition price increases fell short of expectations; progress in for-profit conversion of institutions fell short of expectations.