1HFY24's performance is basically in line with expectations, and we are determined to be a long-distance runner in the higher education industry
New Higher Education Group 1HFY24 achieved revenue of 1,311 billion yuan (yoy +13.8%) and net profit of 432 million yuan (yoy +10.6%). Revenue and profit were 47%/58% of our annual forecast, respectively, which is basically in line with expectations. Starting from FY24, the company will pay dividends once a year in September, and plans to maintain a 50% dividend ratio. Considering the continuous optimization of the company's student structure, we expect FY24-26's revenue to continue to grow steadily, with a year-on-year growth rate of 11.4%/8.6%/7.2%; considering the impact of the increase in capital expenditure for schools in Guizhou, we expect the company's net profit to be $747/8.19/883 million yuan for FY24/25/26, and the target price based on DCF is HK$5.22 (WACC is 14.46%, sustainable growth rate of 1%, HKD/RMB 0.90). Maintain “buy-in.”
The optimization of the student source structure drove revenue growth, with gross margin rising steadily year over year 1FY24's tuition revenue increased 13.3% year over year, and accommodation fee revenue increased 18.1% year over year. We believe it was mainly due to the continuous optimization of the student source structure, especially the increase in average tuition fees brought about by the steady increase in the share of undergraduate students. The gross margin of 1FY24 was 39.8%, a slight increase of 0.5 pct over the previous year. We think it is mainly due to the company's structural optimization within costs. Judging from the cost ratio, the share of investment directly related to teaching quality (teaching, employment, campus construction, core teachers, etc.) has increased, while the share of other personnel expenses has decreased slightly.
Capital upgrade investment in Guizhou schools has been accelerated, and Guizhou schools under the FY24 Capital Expense Forecast Company's application for undergraduate level universities have been included in the local 14th Five-Year Plan. The next two years will be a period of concentrated investment. 1HFY24's capital expenditure is 397 million yuan. Considering that the construction of the third phase of the Guizhou school has already been fully started, the capital expenditure amount is expected to increase month-on-month in the second half of the fiscal year, so we adjusted the FY24-26 capital expenditure forecast to 9/4/3 billion yuan (previous value: 6/5/400 million yuan). Considering the impact of incremental depreciation and amortization, the FY24-26 company's gross margin is expected to be 36.9%/36.7%/36.5%.
Starting with FY24, it is expected to maintain a high dividend ratio of 50%. According to the performance report, the company has revised its dividend policy from FY24 to a centralized one-time dividend in September every year. The company expects to maintain a dividend ratio of 50% throughout the year, continuing to generate stable returns for shareholders.
Risk warning: The competent authorities are tightening their supervision of tuition fees; the increase in the number of students enrolled falls short of expectations; and the progress of for-profit registration falls short of expectations.