Both main revenue and other revenue achieved steady growth
The main revenue of New Higher Education FY23 achieved a 10.3% year-on-year increase to 2.12 billion yuan (RMB, same below), mainly driven by a 13.0% increase in average student tuition fees and an increase in accommodation fees. This year's other revenue increased 19.7% year over year to 4.1 billion yuan, mainly benefiting from service fee revenue and rental income increasing by 15.1% and 24.7% year on year, respectively, indicating that the company's revenue structure is diversified and endogenous growth is steady. This year, the company continued to strengthen the teacher team, hire more highly qualified teachers and increase investment in teaching experiments. Teachers and teaching-related costs increased 10.9% and 9.5% year-on-year respectively, leading to a slight decrease of 1 percentage point to 38.0% in gross margin. FY23's net profit was $70 million, an increase of 13.2% over the previous year. The annual dividend per share was 0.215 yuan, with a dividend rate of 50%. The company's annual performance was in line with expectations.
Adjust the student structure and focus on running high quality schools
In recent years, the company has taken the initiative to control the number of new students and optimized the student structure, such as stopping the admission of new middle school students and expanding enrollment in major student provinces. The proportion of undergraduate students has increased by 2 percentage points, the number of undergraduate students enrolled has increased 3.4 percentage points, and the proportion of undergraduate students enrolled at the Yunnan Institute of Technology and Business has increased 7.5 percentage points. Increasing the proportion of undergraduate students is conducive to increasing the average income of students. The company is one of the first higher education enterprises in the industry to propose strengthening content construction and consolidating the quality of running schools. In recent years, it has been committed to improving curriculum majors, deepening the integration of industry and education, and enhancing students' campus life experience. In the past three years, the company has continued to invest 25 million yuan in school employment work. For three consecutive years, the student employment rate has reached over 95%, and its nine major industrial colleges have achieved 100% employment. The company's Guizhou school has been preparing to upgrade to an undergraduate level school in recent years. It is expected that the upgrade will be implemented in 2025/26. After the upgrade, it will help raise tuition fees and enhance brand reputation. FY24E anticipates the company's capital expenditure of 640 million yuan, of which about 200 million yuan will be spent on upgrading schools in Guizhou.
Target price increased to HK$4.50, “buy” rating
Mainly affected by the increase in tuition fees, the FY23/24E revenue forecast was maintained at $2.37 billion, up 11.9% year over year. Considering that the company will continue to invest in campus and school construction, the FY24/25E gross margin forecast was lowered to 37.0%; operating expenses were slightly increased to 300 million yuan. The latest forecast for FY23/24E is net profit of 760 million yuan, down 5.0%. The company will maintain a dividend rate of 50% and a corresponding dividend rate of 12%-14%, which is higher than that of peers. We raised the target price to HK$4.50 and rolled the target valuation to 8 times the FY23/24E price-earnings ratio. Maintain a “buy” rating.
Investment risk 1. Policy and implementation risks of private schools choosing schools as “for-profit” schools; 2. Enrollment fell short of expectations.