中银国际 ·  May 29

China Education Group

Decent cash holding, dividend payout, and expansion plan

China Education Group (CEG) has good earnings growth outlook, driven by the annual increase of 20,000 enrolments in the next several years and hike in tuition. The education sector stands out on solid cash holding, high dividend payout, and good earnings growth outlook. CEG is still the best pick among the private university segment. We raise earnings estimate by 11.5% to RMB2bn in FY24E, and by 8.7% and 7.3% in FY25-26E. TP is revised up to HK$7.86 by applying the unchanged target multiple of 8x FY24E P/E. With 52% upside, retain BUY rating.

Key Factors for Rating

The enrolment increased by more than 20,000 persons in 2023/24 than in 2022/23, which contributed half of the top-line growth. The other half of sales growth was contributed by 9% YoY hike of average tuition. CEG plans to expand capacity by 52,000 persons in Guangdong and Shandong with estimated RMB5.0bn CAPEX in the next three years, with around RMB4.5bn CAPEX to be booked in FY24E. The new capacity expansion would help add 20,000 new enrolments annually in the next four years, helping to secure sales growth.

As gross margin and cost saving are better than our expectation, we raise earnings estimate by 11.5% in FY24E, 8.7% in FY25E, and 7.3% in FY26E, respectively. The better-than-expected gross margin will be well supported by the tuition hike. Central government is supporting the price hike in public utilities, including water and electricity, as a way to boost the inflation. Thus the outlook of tuition hike would be better than our previous expectation that the tuition hike would be unlikely under the current challenging economy.

CEG holds RMB4.05bn cash in hand, a strong cash position. CEG is expected to maintain the dividend payout ratio at 45%, while peers fail to maintain a decent cash dividend payout. Despite the high CAPEX settlement in cash, CEG is still able to deliver the best payout ratio, which represents 8.9% yield in FY25E, one of the best figure among education peers.

Key Risks for Rating

Spending such a high CAPEX planning in the challenging economy might arouse concerns of whether the high capacity is appropriate in the long term and the high depreciation starting from FY26E.


Given the better-than-expected tuition hike, we raise the margin estimates. The revised net profit would grow by 45.2%, 8.8%, and 9.2% YoY in FY24-26E. We apply the same target multiple, 8x FY24E P/E, to derive the new TP HK$7.86 with 52% upside. BUY rating is retained.

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