It acquired 100% of the shares of Ma On Shan School and acquired the third undergraduate school since listing. On July 15, the company announced that it had signed an organizer transfer agreement with Ma'anshan Fengzhi, the seller, the target school and the guarantor to acquire 100% of the organizers' rights of the target school at a price of RMB 550 million, making it the third undergraduate school to be acquired after Northeast School and Huaibei School; the efficiency of the merger and acquisition was highlighted, while location advantage and performance increase were significant improvements over the previous two acquisitions.
The transaction amount was paid in three instalments. The first instalment was 250 million, a transaction agreement and escrow agreement were signed, and school directors were appointed, of which a deposit of 150 million yuan was paid to deduct the first instalment; the second phase was 120 million. After the organizer change application was accepted by the Ministry of Education, it can be paid using the cash flow of the new school year; the third instalment is 180 million, which can be paid after the organizer change is completed, which can be fully consolidated.
Ma'anshan School is an independent college after its establishment. Its predecessor was Anhui University of Technology Business School (Independent College), which was approved by the Ministry of Education in June 19. Currently, there are about 9100 undergraduate students and 523 faculty and staff, of which over 78% have master's and doctoral degrees, and 38.2% of junior high and above titles. The school has a total of 10 colleges and 31 undergraduate majors. It is the first college in Anhui Province to cooperate with Tencent Enterprise. The total land use rights area of the property is about 488,000 square meters. The school is located in the core area of the Yangtze River Delta, with an excellent location.
On the financial side, net profit in 2020 was about $34 million, an increase of 57% over the previous year. Net profit for 21Q1 was $013 million. As of March 31, 2021, total assets were $980 million and net assets were $240 million.
As an independent college that has already been converted, Ma On Shan College has a relatively scarce license and asset value. On the one hand, it can directly increase the number of students enrolled in the company, and there is plenty of room for revenue performance to improve; on the other hand, the efficiency and quality of the company's acquisitions continue to improve, and there is plenty of room for valuation growth.
With the acquisition, the company will be able to enter the Yangtze River Delta, which is another strategically important location for the Group. Furthermore, after the acquisition, the total number of students in the company will further increase, and its profitability and reputation will be further enhanced.
Classification management was gradually implemented in the post-populist promotion law era. At the same time, the country vigorously promoted the transformation of independent colleges, with a clear and vigorous attitude, providing sufficient M&A targets for the primary and secondary markets. Currently, leading institutions in the higher education sector have strong M&A specialized teams, rich experience in post-investment management, and at the same time have good cash strength and financing capabilities. It is expected that they will seize mergers and acquisitions opportunities and accelerate their own scale growth in the differentiated development of the sector.
Raise profit forecasts and give buying ratings
The company is a leading private higher education operator in South China, focusing on professional education. Currently, the company operates four schools in China. In the 2020/2021 school year, the total number of students enrolled in the schools operated by the company was Guangdong University of Technology, Zhaoqing Science and Technology Secondary Vocational School, and Harbin University.
With over 20 years of experience in running higher education institutions in China, the company is a leading private higher education service operator in South China based on the number of students enrolled.
Considering this acquisition incident, we raised the company's earnings forecast for 2021-22, from the previous net profit of 780 million and 950 million to 800 million and 1 billion yuan. EPS was 0.4 yuan and 0.5 yuan respectively, and the corresponding PE was 11.8xPE and 9.4xpe respectively.
Risk warning: enrollment falls short of expectations, price increases fall short of expectations, mergers and acquisitions fall short of expectations