Event: a maximum of 550 million yuan for the acquisition of 100% rights and interests of the organizers of Maanshan College. The company announced that it entered into a sponsor transfer agreement with Saiwei Intelligence (seller) on July 15, 2021, and the company acquired 100% equity interest in Maanshan College at a transaction consideration of not more than 550 million yuan, and the payment was made in three installments. Ma'anshan College has a revenue of 126 million yuan in 2020 and a net profit of 34.22 million yuan. This transaction corresponds to 16.1 times of PE in 2020.
Maanshan College: high-quality private undergraduate universities with sufficient capacity to support the follow-up development. Maanshan College, formerly known as the Business School of Anhui University of Technology, which was established in 2003, was converted in 2019. In the 2020-2021 academic year, Maanshan College has about 9100 undergraduate students, including engineering, economics, management, liberal arts, arts and other 10 colleges, a total of 31 undergraduate majors.
Maanshan College has outstanding ability to run a school, with an annual report rate of 96.1% and an employment rate of 91% in 2020, all of which are in the leading level of Anhui Province. In terms of school conditions, the school has 881mu of educational land, 150mu of educational land reserved by the government, about 13000 beds (the current utilization rate is estimated to be 69.9%), the existing land can be expanded to 15000, and the school has sufficient capacity.
Room for growth: the improvement of the financial situation is expected to support the growth of the enrollment plan, and the growth of both volume and price is expected. As for the enrollment plan, due to the high asset-liability ratio, the undergraduate enrollment plan of Ma'anshan College in 2020 and 2021 decreased by 9.8% to 1,840 students respectively. After the completion of the merger and acquisition, the company can reduce the school's asset-liability ratio by repaying the loan, and the undergraduate enrollment plan may be promoted in 2022. On the other hand, benefiting from the policy of enrollment expansion, Maanshan College plans to increase its enrollment plan by 50% to 1320 in 2021. Under the background of higher vocational enrollment expansion, the expansion is expected to continue, supporting the future population growth of Maanshan College. In terms of tuition fees, Anhui Province has liberalized the independent pricing of private higher education schools. with the improvement of the quality of running schools, the volume and price of Maanshan College is expected to increase.
Integrated development: deepening the regional layout of the Yangtze River Delta, collectivization of running schools to drive the improvement of profit-making ability. There are 543000 candidates for the college entrance examination in Anhui Province in 2021, ranking seventh in the country. The demand for higher education is sufficient. The company completed the merger of Huaibei Institute of Technology in March 2021, and the merger and acquisition of Maanshan College further improved the advantageous regional layout in the Yangtze River Delta. In addition, the company's Guangdong Institute of Technology is rich and mature (the adjusted net interest rate in 2020 is as high as 70.1%), enjoying the development dividend of the Greater Bay area. In the process of follow-up development, the company is expected to improve the profitability of the target school through collectivized operation and cost control.
Investment advice. The company's Guangdong Institute of Technology is mature in running a school and continues to enjoy the regional dividend in the Dawan area, based on which it has opened its extension. At present, it has landed the merger and acquisition of three high-quality undergraduate schools, and the follow-up integration and development is expected. Considering the performance growth brought about by this M & A, we raise the company's homing net profit forecast for 2021-2023 to RMB1.236 billion (formerly RMB 7.78x955), with an increase of 41.8%, 26.2% and 22.3%, corresponding to EPS 0.40, 0.50 and 0.61 yuan, and the current price corresponds to PE12X/9X/8X, maintaining the "Buy" rating.
Risk hint: the merger and acquisition has not yet been completed, there is uncertainty; the enrollment and tuition fee increase is not as expected; the implementation rules of the regulations on the implementation of the people's Promotion Law are uncertain.