Under the double influence of fluctuations in the global economy and the transformation of domestic economic structures, some industries faced the double impact of overcapacity and market sluggishness, which significantly changed the traditional pace of development of these industries. However, these changes are not entirely negative; they have caused the economy to shift from rapid growth in the past to the pursuit of a healthier, higher quality development model.

In this context, new productivity has emerged. It emphasizes achieving healthy, high-quality, and sustainable development through scientific and technological innovation.

In recent years, the higher education sector has also experienced ups and downs in the capital market. After listing, some higher education companies showed strong capital management capabilities and expansion ambitions, and tried to quickly seize market share through large-scale mergers and acquisitions and aggressive expansion strategies.

However, this strategy is often associated with high risk. Some companies have experienced growth bottlenecks or integration difficulties during implementation, resulting in impairment of goodwill and default on debt, which in turn affects stock price performance.

In this context, among the major higher education stocks in Hong Kong, the stock price of China Chunlai Education Group (hereinafter referred to as “China Chunlai”) has gone out of the independent market and has won the trust of investors with its long-term stable performance and high dividend policy.

Although stock price performance has been slightly sluggish due to recent market fluctuations, this has not shaken the firm fundamentals of the company. With the recovery of the policy environment and the gradual restoration of market confidence in the education sector, China is expected to empty out in spring, showing that its investment value is undervalued by the market.

Good certainty and profitability create strong market resilience

From 2022 to 2023, while the stock prices of other education stocks continued to fall, China bucked the trend. Annual stock price increases reached 86% and 80% respectively, significantly surpassing other companies in the same industry and showing extraordinary market resilience.

Today, with a market capitalization of 5.7 billion dollars, it is in the TOP2 of the top 7 higher education stocks. Although it is leading in terms of market capitalization, judging from the scale of revenue and net profit, China did not rank high in Chunlai.

However, its profitability is outstanding, and it has remained at the forefront of the industry, which reflects China's excellent management level since spring.

The reason behind this, the author believes, is a strong proof that China has implemented a high-quality development strategy since spring. The core of its high-quality development strategy is to focus on financial soundness while maintaining business growth. China Chunlai has found a balance between business development and financial health through prudent business expansion and strict financial risk management.

It is also this state of good business, financial health, and sustainable development that has enabled China to win the recognition of the market and investors during the spring season.

Endogenous and epitaxial two-wheel drive, the number of students enrolled and tuition fees have risen sharply

Due to the high entry threshold for setting up private higher education, and the operation of colleges and universities itself is a capital-intensive activity, the overall entry threshold for the private higher education industry is relatively high.

However, despite the high threshold, the overall concentration of China's private higher education market is still low, and the market share of the top five enterprises in the industry is less than 10%. This means that the industry still has a lot of potential for growth and room for consolidation.

In this context, endogenous growth and epitaxial mergers and acquisitions have become the two major engines driving the growth of the higher education industry.

Endogenous growth relies on the school's own teaching quality, operating conditions, professional settings, educational reputation and influence to attract more outstanding teachers and students and enhance the school's competitiveness; while epitaxial mergers and acquisitions expand the size of the school and achieve a rapid increase in market share.

The higher education industry's source of profit is simple; student tuition fees form the main source of revenue. China's endogenous growth in spring and extended mergers and acquisitions also revolved around increasing the size of students and tuition fees.

Let's take a look at the student population first. Judging from the major higher education stocks in Hong Kong stocks and the changes in the number of students enrolled in the last three academic years, we can see that the growth rate of the number of students in China since spring is the most remarkable among its peers. The compound annual growth rate reached 19% in the last three years, followed by Greek Education International Holdings, with a compound annual growth rate of 14%. The growth rate of the remaining higher education stocks was relatively slow.

Comparing the goodwill and intangible assets of Greek Education International Holdings and China Chunlai, you can seeChina's high growth since spring is not due to aggressive market expansion, but rather more steady endogenous growth and prudent extrinsic mergers and acquisitions.

Over the past 19 years, China Chunlai Education Group has steadily grown from a single campus to an educational institution with seven campuses. Currently, the Group operates four colleges in Henan Province — Shangqiu University, Shangqiu University School of Applied Science and Technology, Anyang University, and Yuanyang Campus of Anyang University. In Hubei Province, China Chunlai manages two institutions: Health College and Jingzhou University. In addition, it also participated in the operation of Jiangsu Tianping University. The first phase of the Tianping University Nanjing Campus project has been completed. At the same time, China is actively planning to expand overseas markets in spring.

This endogenous growth is reflected in the continuous implementation of new schools and new campuses, the upgrading of professional subjects, the improvement of operating conditions, the establishment of AI colleges, and deepening the integration of industry and education to empower schools around high-quality development strategies. 

1. New schools and new campuses continue to land

China's Chunlai core schools are mainly located in the “Central China region”, a province with a large source of students and GDP. In Henan, China Chunlai has a leading market position and a good reputation. On the basis of the original Shangqiu University and Anyang University, it has gradually expanded the Shangqiu University School of Applied Science and Technology and built the Yuanyang Campus of Anyang University; through the continuous implementation of new schools and new campuses, it has consolidated the advantages of running schools locally.

Furthermore, in order to further improve the higher education network in central China, the company established Hubei Health University in Hubei Province and enrolled students in September 2020.

2,Upgrading of professional subjects and improvement of school conditions

The professional settings of China Chunlai's colleges and universities are closely integrated with the country's strategic needs and market needs, and the professional structure is continuously optimized. This is reflected in increasing the application settings for emerging majors, including artificial intelligence, digital economy, new energy vehicle technology, etc., while abolishing majors that have been discontinued and derailed from the market, upgrading traditional majors, and innovating teaching models, developing online and offline hybrid teaching, and building a teaching cloud platform.

In addition to this, teaching infrastructure has also been upgraded, intelligent investment has been strengthened, and advanced teaching conditions and environments have been created.

3.Deepen the integration of industry and education, and establish an AI college

One of the goals of running schools in China in spring is to cultivate applied talents, and emphasis is placed on school-enterprise cooperation and the integration of industry and education. Since its listing, China Chunlai's school-enterprise cooperation network has expanded from 200 companies to more than 1,000 companies. The cooperation includes not only internship training and transformation of R&D results, but also covers various levels such as order-based talent training and joint construction of professional and laboratory projects.

Deep integration of industry and education and close school-enterprise cooperation have effectively increased the employment rate of its colleges. In recent years, it has maintained a high level of 85%-95%, which is far higher than the national average. The high employment rate not only reflects the remarkable results of the Group's employment guidance courses, but also helped China attract more high-quality students in spring, save publicity costs, and promote each other to form a virtuous circle.

Furthermore, in order to further deepen the integration of industry and education and embrace the AI wave, China chose to actively lay out AI education in Chunlai. In 2024, the company first announced a strategic cooperation in the AI field with Beijing Gravity Connect Technology Co., Ltd., to promote school-enterprise cooperation and achieve a win-win situation by cultivating AI marketing talents and establishing a career planning platform for college students. Following that, China Chunlai simultaneously unveiled and established AI colleges at its two core colleges, Shangqiu University and Anyang University, to further deepen the integration of industry and education.

In terms of epitaxial mergers and acquisitions, China Chunlai has shown a different prudence and prudence from comparable companies, adopting a strategy of early participation in operations and gradually incorporating outstanding campuses into the group's layout.

Typical examples of this strategy are Jingzhou University in Hubei and Tianping University in the Yangtze River Delta region. As early as the 2018/2019 academic year, China participated in the operation of Jingzhou University and Tianping University.

It wasn't until May 2021 that the company completed the acquisition of Jingzhou University, and the integration was effective. After the merger and acquisition, the college's revenue, number of students, and tuition fees per capita all increased.

The number of students enrolled in Jingzhou University increased from 10,759 at the beginning of the merger and acquisition to 13,718 in the 2022/2023 academic year. Tuition fees per capita also increased 8% to 171,000, and the college's revenue also jumped from 37 million to 234 million.

Among the company's six universities, Jingzhou University has the highest tuition fee per capita. This not only reflects China's Chunlai's strategic vision when selecting mergers and acquisitions, but also shows its outstanding ability in mergers and acquisitions integration.

Currently, the number of students enrolled in Jingzhou University has been further expanded to 16,752. Based on the steady performance of the past few years, Jingzhou University is expected to become a benchmark college in Hubei Province and provide a successful experience for subsequent acquisitions and new campuses in China's spring.

Another Suzhou Tianping University, which has been in operation for many years since spring in China, is currently in preparation for conversion. Furthermore, the first phase of the Nanjing School of Tianping University, which the company plans to build, has been completed. Nanjing is located in the Yangtze River Delta Economic Development Belt and has an excellent geographical location. It can form regional collaboration with Suzhou Tianping University to jointly promote the further expansion of the Yangtze River Delta market in the spring.

In addition to continuously improving the campus network in the mainland, China is also exploring overseas education opportunities since spring.

China's Spring Festival is currently actively planning overseas expansion. In particular, it is focusing on the Guangdong-Hong Kong-Macao Greater Bay Area, focusing on the Greater Bay Area, Hong Kong and Macao, and surrounding English-speaking countries. In April of this year, China Chunlai announced plans to build a new university in Hong Kong and launch further education services and career planning services. Immediately after that, in May, China Chunlai Group board leaders personally led the executive team to conduct in-depth research and exchanges at many top universities in Singapore and Malaysia. They visited famous institutions such as the National University of Singapore, Nanyang Technological University, Putra University Malaysia, and the National University of Malaysia.

This series of strategic actions shows the Group's determination to actively explore new ways to build private colleges and universities and promote innovation and reform in education. The aim is to provide students with high-quality international education while injecting new vitality into the long-term development of China Chunlai Group.

Driven by endogenous growth and epitaxial mergers and acquisitions, the number of students enrolled in China and average tuition fees have increased dramatically since spring.

The number of students enrolled has grown from 61,400 in the 2019/2020 academic year to 104,400 at present (excluding Tianping University).

In terms of tuition fees, the average tuition fees at core campuses have also increased year by year, with an average annual increase of between 4% and 8%.

The strategy of increasing volume and price has jointly established China's high gross margin level, which is at the top of the industry since spring. In the last three academic years, China's average gross margin reached 61.1% in spring, surpassing the 57.8% of industry leader China Education Holdings.

According to the latest annual report data, the number of students enrolled in China's Chunlai Higher Education Stock Exchange is still relatively small. This also means that the company has significant room for improvement in scale effects through endogenous growth and extended mergers and acquisitions in the future.

According to information exchanged at the mid-term results conference in '24, combined with brokers' forecasts, the merger of Suzhou Tianping University and the expansion of overseas schools is not taken into account. With the further expansion and expansion of Yuanyang Campus, Nanjing Campus, and Jingzhou University, the total number of students enrolled in the Group is expected to grow to 150,000 over the next three years.

Furthermore, there is still plenty of room for improvement in student tuition fees. Currently, several undergraduate schools in China have tuition fees per capita between 1.3 and 1.7. Some schools, such as Shangqiu University, Anyang University, and Health College, have not reached the average tuition fee standard of 15,000 in their provinces. Compared with the maximum upper limit of 18,000, there is also some room for improvement. Furthermore, Jiangsu Tianping University, which has not yet been converted by the company, is ranked 8th in the ranking of the top 20 independent colleges in China, with an average tuition fee of only 15,000. However, according to the college fee management notice issued by Jiangsu Province in 2023, the benchmark tuition fee standards are 23,000, 26,000, and 29,000 for each academic year.

In summary, through endogenous growth and extrinsic mergers and acquisitions, China has achieved a sharp rise in the number of students and tuition fees per capita. The gross margin performance is among the highest in the industry. In the future, as campuses expand and overseas markets expand, tuition fees in some schools are closer to average, and China's profitability will further increase in spring.Mid-term growth visibility is high.

Financial balance techniques for high growth, debt optimization, and period cost savings

On the revenue side, while maintaining a high level of growth in spring, China can also achieve fine management and financial balance.

In recent years, as revenue has increased, the share of expenses (sales expenses, management expenses, financial expenses) during the spring season in China has gradually declined.

Among them, China Chunlai's excellent performance in terms of teaching reputation and employment rate has effectively reduced the advertising costs of admissions promotion, keeping the company's sales expenses at a very low level.

Furthermore, in terms of financial management, the Chinese spring season also embodies the art of financial balance, reducing financial expense ratios year by year, thus further enhancing profitability.

In higher education, a capital-intensive industry, rapid expansion often comes with the risk of borrowing. For example, Greek Education International Holdings, which has the second fastest expansion rate mentioned above, has 24 colleges and serves nearly 300,000 students, but news of a debt default has recently spread, forcing the company to take measures to sell assets to ease financial pressure.

Therefore, it is important to do a good job of fund management while expanding. In contrast, although China's expansion rate in spring has surpassed that of Greek Education International Holdings, its balance ratio has shown a downward trend year by year. The latest balance ratio has fallen to less than 50%.

This phenomenon raises a key question: In the capital-intensive private education industry, how can China effectively balance financial pressure while maintaining rapid growth in spring?

According to Barron's interview with the company's financial director Sheng Yi in April last year, China Chunlai emphasized three key points in its external expansion strategy:

1. Always focus on cash flow management to ensure that book balances and unused financial institution credit lines can cover short-term liabilities;

2. Actively expand cooperation with external financial institutions, from regional commercial banks in the early stages of listing, to joint stock banks, the four major state-owned banks, and even overseas financial institutions, and establish stable long-term strategic partnerships;

3. While controlling the size of debt, continuously optimize the debt structure and reduce average financing costs through diversified financing methods, such as fund loans, long-term mergers and acquisitions loans, cross-border capital pool business, and smart campus co-construction cooperation.

This rich product portfolio strategy not only realizes the effective allocation of corporate capital in the short, medium and long term, but also effectively reduces financing costs.

In fiscal year 2023, China's spring debt structure was optimized, short-term loans decreased, and long-term loans increased, reducing financing costs for that year by 8.3% year-on-year. In the first half of fiscal year 2024, the company's financing costs continued to decrease by 23%. At the results meeting, China Chunlai said it will continue to increase cooperation with state-owned banks and continue to optimize the debt structure in the future.

Meanwhile, in the first half of the 2024 fiscal year, China implemented its first mid-term dividend, with a cash dividend of 120 million, and a dividend payment rate of 28.43%. Despite generous dividends, the group maintained sufficient cash reserves of 380 million yuan and had an unused credit line of 5.7 billion from financial institutions, which fully proved the Group's financial soundness and confidence in future development.

China's steady financial strategy in Chunlai not only supported the company's rapid growth, but also avoided falling into excessive borrowing, laid a solid foundation for the company's long-term development, and also provided useful lessons for the healthy development of the entire private education industry.

epilogue

Looking at several major higher education stocks, in the past few years, China's Chunlai achieved high-quality growth through steady expansion strategies, refined operations, and strict financial management. Looking forward to the future, China still has solid fundamental support and growth can be expected since spring.

Recently, with the recovery of the Hong Kong stock capital market, a number of brokerage analysts have given key recommendations to the higher education sector. They believe that the industry as a whole has large differences in market expectations, and that current valuations are clearly attractive.

According to profit forecasts, China's dynamic price-earnings ratio from 2024 to 2025 is expected to be between 5 and 7 times, with the dual attributes of high profit and undervaluation. Based on its continuous excellent performance in the past, the market should give it a certain valuation premium.