According to the Zhitong Finance APP, CICC released a research report stating that it maintains a "outperform industry" rating for Greentown Ser (02869), considering that the transaction is still ongoing, the full-year profit forecast remains unchanged for now. It is expected that the net income attributable to the parent company will increase by 25% and 20% to 0.76 billion yuan and 9.1 billion yuan in 2024 and 2025, respectively. The target price is HK$5.56.

The company announced on November 8th its intention to sell 11.6% of the equity of its controlling subsidiary, the Australian Montessori Education Group (referred to as MAG), for a transaction consideration of 16.2 million Australian dollars; at the same time, the original shareholders of MAG also agreed to repurchase 10.8% of MAG shares for 15 million Australian dollars. The company also granted the original shareholders an option to purchase the remaining shares, whereby the original shareholders could repurchase the remaining shares of the company for 62.16 million Australian dollars within 4 months after the expiration of 3 years from the option signing date. After the completion of this sale and repurchase transaction, the company's stake in MAG will decrease to 35%.

CICC's main points are as follows:

Focus on core business, sell investments to generate cash flow.

In July 2019, the company completed the acquisition of 56% of MAG's shares for a transaction consideration of 50.27 million Australian dollars (implying MAG's market cap of approximately 90 million Australian dollars) and provided a shareholder loan of 20 million Australian dollars. The transaction consideration implied a market cap of approximately 0.14 billion Australian dollars (corresponding to the 11.6% equity transaction consideration of 16.2 million Australian dollars), representing an increase of approximately 55% from the market cap at the time of the company's acquisition in 2019. The company expects to recover approximately 31.2 million Australian dollars of investment proceeds and 20.91 million Australian dollars of shareholder loans after the transaction is completed, realizing an investment return of approximately 16.8 million Australian dollars (approximately 82.1 million yuan). In recent years, the company has continued to focus on its core business, prudently invest, and reduce investment in some heavy asset appreciation services. The bank believes that this investment sale will not only bring in more foreign currency cash, but also align with the company's focus on the core business strategy. As of the end of June 2024, the company still had other financial assets (including current and non-current) totaling 1.57 billion yuan. The bank predicts that driven by the strategic focus on the core business, the company may continue to have the possibility of further divesting its investments in the future.

It is expected to create space for shareholder returns.

Since 2022, the company has responded actively to concerns about the capital markets, emphasizing shareholder returns, and actively promoting the improvement of incentive schemes (previously announced stock-based incentive plans); in 2023, the company repurchased a total of 44.34 million shares of its own company (corresponding to 0.13 billion yuan, approximately 22% of the net income attributable to the parent that year), while also increasing the dividend payout ratio to 72%. The bank believes that the cash proceeds from this investment sale are also expected to provide some support for the company's shareholder returns.

Risk

The risks of insufficient progress in quality improvement and efficiency enhancement, insufficient improvement in impairment of certain asset items, and intensified competition in external expansion by third parties.