Another 100% merger and acquisition of Anhui schools, with a total cost of 1.24 billion yuan (including school debt commitment and remaining transfer fee)

We expect the compound growth rate of core net profit in 20-23 years to reach 26%, which is driven by strong endogenous growth and new mergers and acquisitions of schools.

Bright's profit outlook remains unchanged, but affected by the downward valuation of the industry as a whole, the target price is lowered to HK $8.9, maintaining the buy rating.

New merger and acquisition of High-quality Ma'anshan College

Kopei announced the purchase of a 100 per cent stake in Maanshan College with an equity consideration of 550 million yuan, with an additional 500 million yuan of school debt and 190 million yuan of remaining breakup fees, with a total consideration of 1.24 billion yuan. Ma on Shan College currently has a total of 9100 students, featuring majors such as Internet technology, covering a total of 31 majors. The teaching quality of the school is high, more than 45% of the teachers have doctoral degrees, and the rate of students taking the postgraduate entrance examination is about 15%. The school currently has a capacity of 13000 people, covering an area of 881mu, with a maximum capacity of 22000 people in the future. In fiscal year 20, the income / net profit is 126 million yuan / 34 million yuan respectively, and the net interest rate is 27%. Kopei will carry out debt swap and cost control in order to improve the performance of the school's profit margin. Management expects the school's income / net profit to grow at a compound annual growth rate of 25% / 40% over the next five years, corresponding to a forward price-to-earnings ratio of 18 times / 9 times forward earnings for fiscal year 24.

Steady implementation of growth strategy

We expect the core profit of Kopei 21amp to grow by 43% in fiscal year 22 and 29% over the same period last year, which is driven by:

1) the Harbin School has been consolidated since April 2021, contributing 39% of the incremental income in FY21; 2) the newly acquired Maanshan College is expected to begin in March 2022 and will contribute 30% of the core net profit in FY22; 3) the conversion of Huaibei School has been approved in May 2021 and will begin in September 2021 and will contribute 15% of FY22 incremental income. 4) Kopei's Guangdong, Harbin and Huaibei schools all have expansion plans to support the growth of the number of students, and Kepei plans to purchase new land for Guangdong schools within this year; 5) Kepei currently has four potential acquisition targets (all independent colleges). Management said that if the time is right, there will be another M & A landing within this year, which will exceed its guidance of 1-2 mergers and acquisitions per year.

With strong earnings growth prospects and strong valuation attractiveness, we will raise our core profit forecasts for fiscal year 21, 21, 22 by 2% and 7% respectively, mainly due to new mergers and acquisitions. Cut the target price from HK $9.4 to HK $8.9 and cut the price-to-earnings ratio for the next 12 months from 18 to 16 (referring to the industry's average of first-tier companies, which generally experience lower valuations). Our target price corresponds to a price-to-earnings ratio of 19 times / 15 times the projected price-to-earnings ratio for the 22nd fiscal year. At present, the PEG valuation of Kopei in fiscal year 21 is 0.3 times, which is lower than the industry average of 0.5 times, and the valuation is attractive.