Maple Leaf Education Bulletin issues convertible bonds worth $125 million ($123 million after fee) due in 2026 at a conversion premium of 25% and an annual interest rate of 2.25%. The convertible bonds issued this time will increase the total equity by 12.8% if they are due to be converted into shares. The proceeds from this issue will be used to repay the S $158 million bridge loan obtained during the acquisition of the Canadian International School (CIS) in Singapore.

The brand image is constantly thickening. Maple Leaf Education completed the merger of CIS in August 2020 to further enhance the company's advantages in international education. According to the information disclosed by management, thanks to CIS's excellent reputation, CIS maintained more than 3000 students, even though CIS enrollment was not affected during the outbreak. In addition, Maple Leaf Education will also add a flagship school to its overseas business through the acquisition of CIS, thereby enhancing the influence of the Maple Leaf brand and boosting the recruitment of schools within the group. As more high-quality students continue to be attracted to Maple Leaf Education, the quality of graduates is expected to gradually improve and continue to boost the reputation of schools in the country, thus forming a virtuous circle.

The decline of short-term enrollment can be controlled. Affected by the COVID-19 epidemic, Maple Leaf Education announced that the number of students in October 20 was 44338, 2.8% less than the 45604 announced in August 20. We believe that with the promotion of the vaccine, the epidemic is expected to be alleviated in the future, the demand for studying abroad will resume, and the enrollment situation of the group is expected to resume growth. In addition, the company has bucked the trend and plans to open seven new primary and secondary schools in China in the next two years, increasing the capacity by about 10900 people (21max 22 academic year: Hohhot High School, Tianjin Eco-City Junior and Primary School, Nankai Primary School and Hubei High School; 22Universe 23 school year: Shenzhen School and Nanjing School). At the same time, the company is also actively seeking mergers and acquisitions in Canada and Southeast Asia, which are affected by the COVID-19 epidemic. Therefore, we expect the enrollment of Maple Leaf Education to grow at a compound annual growth rate of 6.0 per cent to about 50492 in the next three years, driven by endogenous and epitaxial mergers and acquisitions.

Upgrade to buy rating. In fiscal year 20, due to the influence of the epidemic, Maple Leaf Education experienced kindergarten suspension, travel business shutdown and other adverse factors, resulting in a total reduction of income of about 143 million yuan (including the refund of accommodation fees: about 38 million yuan; kindergarten suspension and study program shutdown undercharged: about 80 million yuan; catering and supermarket closure undercharged fees: about 25 million yuan). We believe that the domestic epidemic will gradually alleviate in the 21st fiscal year, therefore, the company's domestic teaching and student service business is also expected to fully resume.

However, in view of the fact that the recovery rate of the overseas study tour program is not as fast as we had expected, we have lowered our earnings per share forecast for fiscal year 21 from 0.22 yuan to 0.20 yuan. At the same time, we expect that with the use of vaccines, overseas outbreaks will begin to recover from 2022, so we have lowered our earnings per share forecast for fiscal year 22 from 0.26 yuan to 0.24 yuan. It is believed that with the full recovery of overseas business, better synergy at home and abroad will begin to appear, which will lead to both enrollment and income. As a result, we raised our earnings per share forecast for FY23 to 0.29 yuan from 0.28 yuan. We raised our target price from HK $2.68 to HK $2.83, corresponding to a 54.5% upside, and we upgraded to a buy rating.