New Higher Education Group announced its semi-annual report for FY24, with revenue of RMB 1.31 billion, up 13.8% year on year; adjusted net profit to mother was RMB 426 million, up 7.6% year on year. Both revenue and profit growth are in line with our previous expectations. We believe that the increase in the company's revenue is mainly due to the Group's steady endogenous growth, driven by increases in tuition and accommodation fees.
Student structure optimization. The New Higher Education Group continued to optimize the student structure in the 23/24 school year, and the proportion of undergraduate students in FY24 increased 3.4 percentage points to 39.8%. Benefiting from higher tuition fees for undergraduate students, the FY24 New Higher Education Group's average tuition fee reached 16,000 yuan, an increase of 13% over the previous year. The FY24 Group adhered to a high-quality content development strategy and continued to increase investment in personnel and facilities. Personnel costs increased 11.4% year on year, and depreciation and amortization costs increased 28.4% year on year, synchronizing or exceeding revenue growth. New higher education institutions have maintained a basic stability in gross profit by optimizing student recruitment institutions and raising tuition fees. The gross profit margin for the first half of FY24 was 39.8%, a slight increase of 0.5 percentage points over the previous year. Looking ahead, we believe that as the Group's core construction is gradually completed and hardware investment declines, main cost growth will slow down, and gross margin and net profit margins can be expected to increase further.
Strict cost control guarantees profit margins. In the first half of FY24, the company continued to optimize the effectiveness of running schools and strictly control expenses. Administration and sales costs all maintain a stable share of revenue. Of these, administrative expenses accounted for 4.1%, a slight increase of 0.2 percentage points. Sales expenses accounted for 1.7%, a slight increase of 0.1 percentage points. Benefiting from the decline in domestic financing costs, while maintaining the size of the company's debt, financial expenses accounted for 4.5%, a year-on-year decrease of 1.4 percentage points. The profit margin before tax was 40.4%, a slight increase of 0.3 percentage points from last year.
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) under the New Higher Education Group obtained commercial school transition permits in August and December 2022, respectively, and schools in Yunnan and Guizhou are also going through the relevant formalities. We believe that group colleges will enjoy the right to set their own tuition fees once they register as for-profit. The increase in tuition fees is maximally adjusted in a market-based manner based on the quality of the colleges themselves and the prices of peers. At the same time, since it is a for-profit entity, school shareholders can obtain income from running the school, and the school's dividends will be more guaranteed.
Maintain a buy rating. Benefiting from the high quality education strategy of the New Higher Education Group, we believe that the company's average tuition fees are expected to maintain a compound annual growth rate of 5.2% from fiscal year 24 to 26. We maintained the company's net profit to mother for the 24/25/26 fiscal year to $786/8.98/989 million yuan. We maintain our target price of HK$3.46, which corresponds to a 51.1% increase and maintain our buy rating.
Risk warning: Tuition fee increases fall short of expectations; the progress of for-profit conversion of institutions falls short of expectations.