Key Views
1. The target school is a famous local school with stable and strong profitability
Chengdu No. 7 Middle School Experimental School is a private non-enterprise unit with primary school, middle school, high school, and international department. 1) The number of students in school is stable, and the number of students enrolled has remained above 5,500 in recent years. 2) The school has established a strong education brand, ranking first in the region with the highest liberal arts and science course rate and undergraduate rate. 3) The school's profitability is stable. It is known that there are 5,500 students enrolled. Assuming tuition fees of 35,000 yuan/year for each student, the estimated income is 200 million yuan, and the net profit is about 100 million yuan.
2. The transaction constitutes a major restructuring and is expected to be a cash acquisition
The company announcement initially confirmed that the planned share acquisition constituted a major asset restructuring. Considering that the target school involved compulsory education assets, it was difficult to issue shares; the company had plenty of cash and had 1.35 billion yuan in cash on its 2016 Q3 account, so it is expected that this acquisition will be a cash purchase.
3. Company education is rapidly transforming, and the merger and acquisition model deserves continued attention
Since acquiring Longwen Education in 2016, the company has entered the education industry. The education layout has been rapid: 1) it invests in British education and is involved in international education; 2) it plans to acquire Little Red Hat and lay out preschool education; 3) it plans to acquire Eddy Education, and the next city of international education; 4) it acquires Chengdu No. 7 Middle School to lay out academic education.
4. Investment advice:
Assuming that this transaction is successfully completed, the company's net profit for 2016-2018 exam preparation is 0.48/3.58/3.98, and the corresponding PE is 286/38/35 times. The company's continuous mergers and acquisitions of education assets is worth paying attention to.
5. Risk warning:
Education acquisition falls short of expectations, consolidation risks