Recommended logic: Undervaluation, room for higher tuition fees and net interest rates. Colleges and universities under major companies are mainly located in Henan, Hubei, and Jiangsu provinces. Compared with peers, there is still plenty of room for future tuition increases, and there is room for reduction in financial expenses after listing through debt replacement and financial expenses, leading to an increase in net interest rates. The company's revenue for FY24-26 is expected to be 1.629/1.841/2.14 billion yuan, corresponding growth rate of 8.8%/13.0%/16.2%; expected net profit for FY24-26 is 0.763/0.878/1.033 billion yuan, corresponding growth rate is 11.5%/15.1%/17.7%; EPS corresponding to 24-26 is 0.64/0.73/0.86, closing price of HK$4.6 on August 2, 2024, corresponding to 24-26 Year 6.73/5.85/4.97X PE, covered for the first time, and gave a “buy” rating.

Competitive advantage: a province with a large source of independent colleges, with strong ability to establish independent colleges (1) Location and brand advantage: a strong brand reputation in the region; (2) teaching and employment advantages: the group has a huge and stable supply of teachers and students, and comprehensive and rich course quality; the schools under the group have excellent employment rates, and master's degrees have been approved by the two institutions, which prove the teaching level; (3) Undertake the transfer of independent colleges: promote the improvement of enrollment and performance of the host institutions.

Growth driver: number of people+price increase+net interest rate increase

(1) Growth in numbers: Benefiting from the launch of new campuses and the rapid growth of students enrolled in converted colleges, Anyang University's Yuanyang Campus and Jingzhou University began enrolling students in '21. We expect the number of students enrolled in the future to rise from 0.1 million to 0.15 million. The increase in enrollment in '26 mainly comes from Health College, Jingzhou University, Yuanyang Campus of Anyang University, and Tianping University. We expect the number of students enrolled to grow from 3699/13718/8118/- in FY23 to 12000/26133/17466/14300 in FY26, respectively. The capacity of these four institutions is around 12000/30000/25,000/25,000, and the company continues to acquire land to expand, which is expected to drive a continuous increase in enrollment scale. (2) Tuition fee increase: Currently, the average fee for company students is only 0.013-0.015 million yuan. Compared with schools in the same industry, there is still a lot of room for improvement. (3) In the future, the company will replace debt, and there is room for a reduction in the financial expenses ratio.

Risk warning

Risk of adjustment of national regulations and policies; risk of transition falling short of expectations; increased risk of market competition; systemic risk