Incident Overview
FY2024H1 The company's revenue/net profit attributable to mothers/adjusted net profit was 3.284/10.71/1,092 billion yuan, up 18.3%/9.62%/4.5% year-on-year, and the adjusted net profit growth rate was lower than the revenue growth rate mainly due to increased investment in the company's new campus construction, leading to a decrease in gross margin and an increase in management expenses; adjusted net profit adjustment projects were mainly exchange gains and losses (20.01 billion yuan in 22/23); equity incentive expenses (RMB 0.17/0 million in 22/23); the Independent College changed current expenses (RMB 0.17/0 million) $17/0 million in 22/23); and changes in the fair value of the school building's payable construction costs ($17.0 million in 22/23).
The company plans to pay an interim dividend of $0.1877 per share, with a dividend rate of about 45% (40% for FY23H) and an annualized dividend rate of 10.2%.
Analytical judgment:
The increase in income was mainly due to contributions from higher education, and the number of middle school employees declined. FY24H1, the group's revenue reached 3.284 billion yuan, up 18.3% year on year. In terms of breakdown: (1) The domestic market achieved revenue/net profit of 31.79/1,455 billion yuan, an increase of 19.2%/15.8% year on year, and the net interest rate was 45.8%, down 1.3 PCT year on year. International Education FY24H1 achieved revenue/net profit of 1.05/15 billion yuan, a year-on-year decrease of 1.9%/11.8%, and a net interest rate of 15.9%, a year-on-year decrease of 1.6 PCT. (2) By business, revenue from education service fees/supporting services was $3,23,021 million respectively, up 19%/-5% year-on-year. Revenue growth was mainly driven by the increase in the number of students enrolled in higher vocational education institutions and tuition fees.
The decline in gross margin was mainly due to increased investment in running schools. The decline in net interest rate was higher than gross margin, mainly due to increased management fee rates and income tax. 24H1's gross margin was 56%, down 1.4PCT year over year. Net interest rate/adjusted net profit margin to mother was 32.6%/33.25%, down 2.6/4.41PCT from the previous year. Looking at the cost breakdown: (1) Depreciation/revenue from property, school buildings and equipment was 11.57%, up 0.15 PCT year over year.
(2) Fair value of costs payable for school building construction/revenue of 0.61%, a year-on-year decrease of 0.11PCT. (3) Employee costs/revenue was 31.06%, up 0.83 PCT year on year. Among them, salary and other allowances/income increased 1.26PCT to 26.77% year on year, and the number of FY2024H1 employees was 17,800, up 19.46% year on year. Looking at the cost breakdown: (1) the sales expense ratio was 2.71%, down 0.4 PCT year on year; (2) the management fee rate was 14.49%, up 0.54 PCT year on year, mainly due to the increase in the number of students and the beginning of confirmation of depreciation; (3) the financial cost ratio was 6.85%, which was basically the same as the year before. (4) Other income and loss accounted for -0.6%, an increase of 0.8 PCT over the previous year. (5) The share of income tax increased by 1.7 PCT over the same period last year.
The pace of school expansion is increasing, driving endogenous growth. The capital expenditure of FY2024H1 was 2,032 billion yuan, an increase of 66.6% over the previous year, mainly related to the construction of new buildings in the existing campus and the expansion of capacity in Shandong and Guangdong Province.
Investment advice
According to our analysis, the company's future growth space is: (1) In the short term, we expect students to continue to grow in September; (2) the construction of the first and second phases of the new campus of the Zhaoqing School has been successfully completed, and the Zhaoqing School has purchased another plot of land with an area of about 372 acres to build the third phase of the new campus, which is already progressing smoothly; with strong support from the local government, Shandong School has officially begun construction of a new campus in Yantai City. The first phase of the new campus has a planned area of more than 700 acres and is scheduled to be put into use in the 24/25 school year; Australian schools have been approved to establish a new campus with an area of more than 700 acres and is scheduled to be put into use in the 24/25 school year. The quota is 1,000 people, and it is expected to increase further to 2,000. We expect capital expenditure to be the same in '24 as it was in '23. (3) In terms of net interest rate: Schools acquired by the company still have room to improve net interest rates; the increase in the company's financial expenses is mainly due to the increase in interest rates on the company's dollar-denominated floating interest rate loans, and financial expenses are expected to improve after the US dollar interest rate is cut. The revenue forecast for the 24/25/26 fiscal year was maintained; the adjusted net profit forecast for the 24/25/26 fiscal year was lowered from 22.46/26.35/3.087 billion yuan to 21.881/25.52/3.05 billion yuan, corresponding to the 24/25/26 fiscal year EPS-0.85/1.00/ 1.18 billion yuan. The PE corresponding to the closing price of HK$4.26 on April 28, 2024 was 4.6/3.9/3.3X (Note: HK$1 = RMB 0.92), maintaining a “buy” rating.
Risk warning
Enrollment falls short of expectations, uncertainty about policy factors, systemic risks.