Incidents:

The company announced the annual results announcement for the year ended August 31, 2023. Revenue for the period was 1,498 billion yuan, up 14.4% year on year, of which tuition revenue was 1,359 billion yuan, up 14.41% year on year, and accommodation income was 139 million yuan, up 14.46% year on year. The gross profit for the period was 890 million yuan, up 7.7% year on year. The main reason for the change in gross margin was the increase in salary costs. Profit before tax during the period was 688 million yuan, up 23.9% year on year. Net profit for the period was 684 million yuan, an increase of 23.9% over the previous year. The adjusted net profit for the period was 673 million yuan, an increase of 25.2% over the previous year. The adjusted net profit margin increased to 44.9% from 41.1% in the same period last year. The main factor in the change in the adjusted net interest rate was a decrease in administrative expenses and financing costs, which was partly offset by a decrease in gross margin. The Company proposes a final dividend of RMB 0.053 per common share.

The number of students continues to grow, and the demand side is healthy and stable

The total number of students enrolled in the company's six schools in the 2022/2023 fiscal year was 103,300, an increase of about 5.7% year-on-year compared to the previous fiscal year. In the 2022/2023 fiscal year, the total enrollment ratio of the company's four institutions offering undergraduate courses was 96.8%. The company's high-quality teaching quality has formed a good reputation. Together with perfect curriculum design and leading education concepts, it has helped the company maintain a high employment rate and continue to attract outstanding students seeking good employment opportunities.

Profit Forecasts, Valuations, and Ratings

Based on the assumption that the company can better meet market demand and that the number of students enrolled is growing healthily and steadily, we expect the company's revenue for the 2024/2025/2026 fiscal year to be 1,730 billion yuan, 2,069 billion yuan and 2,366 billion yuan, respectively, with year-on-year growth rates of 15.46%, 19.60% and 15.36%, and net profit of 804 million yuan, 959 million yuan and 1,098 million yuan respectively, with year-on-year growth rates of 17.47%, 19.26% and 14.51%, EPS, respectively. 0.80 and 0.91 yuan/share, 3-year CAGR of 17.06%.

In view of the company's steady growth, with reference to comparable company valuations, we gave the company 12 times PE in 2024, with a target price of HK$8.80, and the corresponding exchange rate of HKD 0.9131, maintaining the “buy” rating.

Risk Reminder: 1. The promotion of for-profit schools falls short of expectations; 2. Macroeconomic fluctuations; 3. Risk of worsening of the competitive landscape; 4. Risk of declining teaching quality; 5. Risk of falling short of expectations when purchasing school benefits