According to the Zhitong Finance APP, Huaxi Securities has released a research report stating that due to undervaluation, there is a large room for improvement in tuition fees and net margin, and it has initiated coverage of China Chunlai (01969) with a "buy" rating.

It is reported that China Chunlai is a leading private general higher education institution in central China. According to Frost Sullivan data for the 2017/2018 academic year, based on the total number of students enrolled, the company is ranked first in private higher education providers in central China and fourth in the country.

Since its listing, the group has started to accelerate its expansion. Currently, there are six universities including Shangqiu College, Anyang College, Shangqiu College Application Technology College, Hubei Health Vocational College, Jingzhou University, and Anyang College Yuanyang campus. Suzhou Science and Technology University Tianping College has not yet been consolidated. According to the company's announcement, it is acquiring the equity of the operator, and the first phase of Tianping College Nanjing Gaochun campus has been completed, with a planned enrollment scale of 25,000 students in the future.

In FY2023, the company's revenue/net profit/adjusted net profit were 1.498/0.684/0.673 billion yuan, a year-on-year increase of 14%/24%/25%. Based on the core operating indicator of the number of students, the number of students in FY2023 was 103,277, a year-on-year increase of 5.7%. It is expected that the number of students enrolled in the next 3 years will reach 150,000.

In terms of competitive advantages, China Chunlai occupies a large number of students in the province and has strong capabilities in accepting independent college conversions.

In terms of location and brand advantages, it occupies a large number of students in the province, with a strong brand reputation in the region; in terms of teaching and employment advantages, the group has a huge and stable supply of faculty and students, comprehensive and rich course quality, and the university colleges under the group have excellent employment rates, and two colleges have been approved for master's degrees, proving their teaching level; in terms of accepting independent college conversions, it helps to improve the enrollment and performance of the receiving colleges.

In terms of growth drivers, China Chunlai's number of students, price increases, and net margin improvement.

For student growth, the rapid growth of students in newly established campuses and transferred colleges will benefit the company. The Yuanyang campus of Anyang College, Jingzhou University, started enrolling students in 2021, and it is expected that the number of students in the future will increase from the current 100,000 to 150,000. The increase in the number of students in 2026 mainly comes from Hubei Health Vocational College, Jingzhou University, Anyang College Yuanyang campus, and Tianping College, with the expected enrollment increasing from 3,699/13,718/8,118/0 (negative) in FY23 to 12,000/26,133/17,466/14,300 in FY26. The capacities of these four colleges are around 12,000/30,000/25,000/25,000 students respectively, and the company is continuing to acquire land and expand, which is expected to drive the continuous growth of enrollment.

Regarding tuition fee increases, the company's average fee per student is only 0.013-0.015 million yuan, and there is still a lot of room for improvement compared to schools in the same province.

In addition, in the future, China Chunlai's financial expense ratio may decrease through debt replacement.

The fees charged by the company's old colleges are relatively low, but looking at the tuition fees of each college in 2024, the increase in tuition fees for new students is expected to drive the gross margin improvement with the cost of teachers and other expenses remaining the same. The company's management expense ratio and financial expense ratio are both relatively high compared to the industry average, and it has been continuously reducing costs and increasing efficiency in recent years. The loan interest rate has decreased from 9.9% in FY15 to 5.8% in FY23. In the future, the company may reduce its financial expense ratio through debt replacement, and the continuously optimized expense ratio is expected to drive the improvement of the company's net margin.