Incident Overview

2024H1's revenue/net profit was 0.535/0.18 billion yuan, respectively, up 8.3%/-2.0% year over year. The increase in revenue and the decline in profit were mainly due to a decrease in gross profit due to changes in depreciation periods.

The final dividend of 2024H1 is HK$0.1 per share, with a dividend rate of 20% and a dividend rate of 6.8%. As of the first half of 2024, the company has purchased a total of 19.5985 million shares on the open market at an average price of HK$4.67 per share, for a total of HK$91.579 million.

Mr. Zheng Xiangzhan resigned as CEO of the company due to age. Mr. Zhou Tianming was appointed as the company's CEO. Zhou Tianming rejoined the company as executive vice president in August 2021, and is one of the shareholders of Jianqiao Group (an affiliated entity of the company), and is responsible for the overall operation of the group.

Analytical judgment:

There was a drop in new enrollment in the 24/25 academic year, and tuition fees for post-secondary education increased. (1) 2024H1 tuition fee/accommodation revenue was 0.455/0.071 billion yuan, up 7.7%/9.9% year over year. In terms of volume and price breakdown, the total number of students enrolled in the company in the 2023/24 school year was 2,5013, an increase of 2.2% over the previous year, mainly due to the contribution of college upgrades (73%/10%/17%, respectively, the number of students increased by 0%/0%/13% over the previous academic year). The average tuition fee for 2024H1 for half a year was 18,181 yuan, an increase of 5.3% over the previous year, mainly due to the increase in tuition fees for post-graduate studies from 23,000-38,000 yuan to 30,000 to 39,800 yuan. (2) Contract debt was 0.085 billion yuan, a year-on-year decrease of 26.6%. (3) The company further develops international education. It has cooperated with Birmingham City University in the UK, the Kyoto Institute of Informatics in Japan, and Vaughan University of Aeronautical Science and Technology in the United States. There are 13 degree cooperation programs and 76 cooperation agreements.

Seize the policy dividends of the Lingang New Area, continue to strengthen school-enterprise cooperation, promote the process of integrating industry and education, and comprehensively transform industry-education integrated universities. The company was awarded a license for the first batch of industry-education integration bases in the Lingang New Area and one of the first 14 “urban industry-education consortia” in Shanghai. It has 159 school-enterprise cooperation projects, including well-known companies such as EY, iFLYTEK, Starbucks, and Hilton.

The change in depreciation period led to a decline in gross margin. The decline in net interest rate was lower than gross margin mainly due to a decrease in management expenses, an increase in the share of other income, and a decrease in the share of income tax. (1) The gross margin of 2024H1 was 61.8%, down 6.7PCT year on year, mainly due to the increase in employee salaries (21% year-on-year increase) and depreciation amortization (the depreciation period for properties, plants, etc. changed from 50 years to 30 years starting July '23). (2) Net profit margin was 33.6%, down 3.5PCT year on year. (3) 2024H1 Sales Expense Rate/Management Expense Rate/Financial Expense Ratio increased 0.1/-1.3/0.2PCT to 0.50%/16.21%/2.57%. The reduction in management expenses ratio was mainly due to the company outsourcing logistics services such as security, cleaning and property to professional teams, and the decline in executive remuneration; other revenue/revenue increased 1.0PCT to 3.1% year-on-year, mainly due to increased government subsidies and leasing revenue; the share of financial asset impairment losses increased by 0.4 PCT to 0.41%; the share of other expenses/revenue decreased 0.3 PCT to 0.05%; income tax/revenue share decreased by 1 PCT to 11.5%. The capital expenditure was 0.117 billion yuan, a year-on-year decrease of 36.7%, mainly for the fourth phase of campus facility construction. The weighted average bank loan interest rate was 3.79%, down 0.06PCT year on year, and the company disclosed that according to the “Implementation Opinions on Loan Interest Rates for Key Enterprises in the Lingang New Area of the China (Shanghai) Pilot Free Trade Zone”, the company can also enjoy additional loan interest rate subsidies, and financing costs are expected to be further reduced.

The employment rate remains high. As of August 31, 2023, the employment rate of the 2023 graduates of Shanghai Jianqiao University reached 99.1% (98.9% in '22), of which 58.9% of the graduates remained employed in Shanghai.

Investment advice

According to our analysis, future growth drivers: 1) The company plans to enroll 7,724 students in the 2024/25 academic year, an increase of 4.6% over the previous year. Of these, 4886/850/1988 undergraduate, and junior college students were enrolled respectively, an increase of 6%/7.9%/0.3% year over year. Considering the time of graduation, we expect this year's income to be flat; 2) The company is a listed company that has completed a for-profit transition, and there is still room for improvement in tuition fees. Tuition fees for the 24/25 academic year will be raised to 32,000-39,800 yuan, and undergraduate/specialty fees will remain unchanged at 32000-39800 yuan/20,000 yuan; at the same time, the company carried out intelligent building transformation in the two dormitories of the second phase of the school building construction plan, increasing the accommodation fee for new students from 5,800 yuan to 7,800 yuan. 3) In the medium to long term, the fourth phase of the school building construction plan began in December 2022, with a total construction area of about 86,400 square meters, including a teaching and training building, 3 talent apartment buildings, and a multi-functional R&D center. It is expected to be put into use in the 2024/25 school year. Combined with the advantages of the industrial cluster in the Lingang region and government support, the company's advantages in integrating industry and education are worth paying attention to. It is also expected to expand a new business model after the fourth phase of the school building is put into operation. 4) Continuing education for adults and non-academic vocational education are also new growth points. Considering the decline in tuition fees in the new school year, the 24-26 income forecast was lowered by 1.069/1.208/1.359 billion yuan to 0.933/0.988/1.052 billion yuan; net profit to mother for 24-26 was reduced by 0.32/0.37/0.433 billion yuan to 0.285/0.308/0.336 billion yuan; corresponding to the reduction of the 24/25/26 EPS 0.76/0.90/1.04 yuan to 0.69/ $0.74/0.81, with a closing price of HK$2.94 on August 29, 2024, corresponding to the 24/25/26 PE ratio of 3.94/3.64/3.34 times (HKD1 = RMB 0.92), maintaining a “buy” rating.

Risk warning

Potential risks of policy changes, risk of enrollment falling short of expectations, intense market competition and threat of new entrants, systemic risks.