Continuously improving the student source structure and improving operational robustness, the net interest rate is relatively stable. China Science Training FY23 achieved revenue of 1,517 billion yuan (yoy +5.4%) and net profit of 743 million yuan (yoy +5.5%); gross margin was 57.6% (yoy-5.1 pct), and net interest rate was 49.0% (yoy+0.1pct).
FY23 suspended dividends to prioritize repayment of M&A loans, and expects FY24 to return to normal dividends.
We believe that the increase in the share of undergraduate students and the expansion of middle school classes are expected to drive a steady increase in overall student income. The net profit of FY24-26 is estimated to be 7.97/8.41/882 million yuan. According to market changes, WACC will be adjusted from 13.14% to 12.99%, and the target price based on DCF is HK$4.52 (previous value:
(HK$5.44, with a sustainable growth rate of 1%, HKD/RMB 0.92). Maintain “buying.”
Undergraduate education is the main driving force for income growth; broadening middle vocational enrollment types and increasing average student income The total number of undergraduate students enrolled in FY23 companies increased 7.8% year on year to 59,600, undergraduate fee revenue increased 12% year over year, undergraduate fees accounted for 86% of total tuition income, an increase of nearly 5 pct year over year; the number of undergraduate students in the 23/24 academic year increased 22% year on year, and the total number of undergraduate students increased further 10% year over year. The share of undergraduate students increased 6.2 pct, and the student structure continued to improve. The number of college, middle vocational, and continuing education courses in FY23 companies decreased by 31.9%/5.2%/2.7% year on year, respectively. For the Chinese business, according to market demand, the company has developed college entrance examination classes with high customer unit prices and higher education orientation. It is expected that the average student income will increase and offset the impact of the decline in the number of students on this business revenue.
Capital expenditure reduced year over year; debt structure continued to be optimized
FY23's capital expenditure fell from 571 million yuan to 309 million yuan over the same period last year. It is mainly used for the expansion of school buildings and dormitories in schools in Guangdong and Huaibei, as well as investment in experimental training equipment for various schools within the group and improvement of the campus environment. Since the company has already passed the centralized construction period, we expect FY24-25 capital expenses to remain around 300 million yuan, which is expected to gradually decrease in the future. FY23's interest-bearing bank and other loans decreased by 366 million yuan year-on-year, and the debt ratio (interest-bearing borrows/equity) fell from 56% to 40%; since FY24 will concentrate on repayment of merger and acquisition loans, it is expected that the debt will be further reduced by 600 to 700 million yuan over the next year. Due to cash flow considerations, the company suspended dividends at FY23, and is expected that FY24 will resume dividends.
The cost control effect is remarkable, and the net interest rate remains relatively stable
The gross margin of FY23 fell 5.1 pct year on year to 57.6%, mainly due to investment in teachers and student employment, and increased depreciation and amortization for the construction of high-standard laboratories and school buildings; however, thanks to strict cost control, sales expenses decreased by 66.7% year on year, management expenses decreased 9.7% year on year, and net interest rate remained at around 49%, which was relatively stable.
Risk warning: Supervision of tuition fee pricing by the competent authorities is tightening; the number of students enrolled has not grown as expected; and the progress of for-profit registration is slow.