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中教控股(00839.HK):内生增长稳健 持续高派息回馈股东

China Education Holdings (00839.HK): Endogenous growth is steady, and high dividends continue to give back to shareholders

Performance review

The company's 2024 fiscal year results are basically in line with our expectations

China Education Holdings announced financial results for the 2024 fiscal year: revenue increased 17.1% year over year to 6.58 billion yuan, and adjusted net profit to mother increased 3.3% year over year to 1.97 billion yuan, which is basically in line with our expectations. The company announced a year-end dividend of RMB 10.28 per common share, along with an interim dividend of RMB 18.77 points per common share. The total amount of dividends distributed during the fiscal year (approximately $0.788 billion) corresponds to a dividend ratio of about 40% (the same as the previous year) and a dividend rate of about 9% (as of the close of November 29, 2024).

Development trends

Growth in scale has remained steady. In fiscal year 2024, the company's revenue increased 17.1% year over year, of which approximately 8.9% was contributed by the increase in the number of students. As of August 31, 2024, the number of full-time students enrolled in the company increased by 9% year on year to 0.27 million; among them, the number of students enrolled in higher education reached 0.22 million, an increase of about 12.5%; in the 2024/25 school year, the number of full-time students enrolled in the company was about 0.097 million, which is basically the same as the previous year. In terms of school capacity, the company added nearly 0.04 million new student capacity during the period, and the number of campuses increased from 22 to 23. In terms of majors, the company's member schools opened a total of 384 applied undergraduate majors at the higher vocational education level during the period, an increase of 12 over the previous year; 206 specialist majors, an increase of 24 over the previous year. Looking ahead to fiscal year 2025, we expect the company's revenue to grow 11% year over year to 7.3 billion yuan, of which about 5% will be contributed by the increase in student numbers.

Short-term investment has increased, and profits need to be released urgently. In fiscal year 2024, the company's gross profit margin was 55.4%, down 0.9 percentage points year on year; adjusted net profit margin was 30.0%, down 4 percentage points year on year, mainly due to increased labor costs, depreciation and amortization expenses, and income tax expenses. The company carried out one-time goodwill impairment on its three schools during the period, totaling $1.718 billion (after deducting deferred taxes). It mainly takes into account that the performance growth expectations of these schools were lowered compared to the time of acquisition in the context of pricing guidance, increased competition, and changes in regional policies. The company's total capital expenditure increased 84% year-on-year to 4.86 billion yuan during the period, mainly investing in new buildings in existing campuses and the capacity expansion of relevant schools in Shandong and Guangdong Province. We anticipate a gradual decline in capital expenditure investment starting in FY2025. As of August 31, 2024, the company's cash reserves were approximately $6.63 billion, with banks and other loans, bonds and convertible bonds totaling $10.24 billion, with an interest-bearing balance ratio of about 26.4% (24.1% in the same period last year), which is at a healthy level.

Profit forecasting and valuation

Based on more prudent assumptions about the increase in the number of students and tuition fees per student, revenue for FY2025 was reduced by 2% to 7.3 billion yuan; considering the increase in school investment and income tax expenses, adjusted net profit for FY2025 was reduced by 14% to 1.97 billion yuan. Introduced a revenue forecast of 8.06 billion yuan for fiscal year 2026 and an adjusted net profit forecast of 2.26 billion yuan to mother. Maintain an outperforming industry rating; reduce the target price by 17% to HK$5 (switch the valuation to FY2025 and give 4.4 times adjusted EV/EBITDA), taking into account the slowdown in short-term profit growth and the decline in the industry's valuation center. The company is currently trading 3.3 times the adjusted EV/EBITDA in FY2025, and the target price corresponds to 44% upward space.

risks

Higher education industry policies exceeded expectations; enrollment and tuition fees fell short of expectations.

The translation is provided by third-party software.


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