The performance is sound and in line with expectations
2019FY achieved revenue of 1.689 billion yuan, an increase of 34.1% over the same period last year, gross profit of 741 million yuan, an increase of 36.1% over the same period last year, a net profit of 359 million yuan, an increase of 15.8% over the same period last year, and an adjusted core net profit of 428 million yuan, an increase of 33.1% over the same period last year. The company has 54420 students in the 2018-2019 academic year, an increase of 25.9% over the same period last year, and the average tuition fee is 21146 yuan, an increase of 6.3% over the same period last year. The company's 2019FY gross profit margin is 44.1%, 0.4% higher than 2018FY. The increase in borrowing led to an 86.4 per cent year-on-year increase in financial costs and a 3.5 per cent drop in net interest compared with 2018FY. In the same period, due to the good enrollment and optimal management of mature schools, the enrollment expense rate is flat, and the management expense rate has declined.
The layout of the Greater Bay area and inter-provinces are promoted synchronously.
As of August 31, 2019, the company has a total of 12 schools, including 6 in Guangdong Province and 6 outside Sichuan, Shandong and Fujian provinces. Short-term inter-provincial schools may be due to the lack of word-of-mouth, regional differences and the expansion of the management radius and other challenges, the first 2-3 years of enrollment is small. However, in the medium and long term, it is of great significance for the company to accumulate national school-running experience and open up the incremental market. As of September 1, 2019, the company had 60116 students, an increase of 10.4% over the same period last year. The company's contract debt was 750 million yuan, an increase of 21.5% over 2018FY's deferred income of 617 million yuan. Because the school collects tuition and accommodation fees in advance, we expect the company's 2020FY to grow by no less than 20%.
The growth rate of debt is expected to slow down
We expect that if the company continues to expand at the rate of 2-3 new schools a year in the future, the pressure on capital expenditure will gradually ease. When the new and old schools contribute more cash flow, the company may control the debt ratio and pay more attention to the optimization of the debt structure.
Maintain a "buy" rating
We forecast that the company's revenue from 2020 to 2022 will be 20.51,24.21 and 2.784 billion yuan respectively, with year-on-year growth rates of 22%, 18% and 15%, respectively. Taking into account the impact of high short-term financial expenses, the company's net profit forecast was lowered to 4.04,5.33 and 643 million yuan, with year-on-year growth rates of 12.5%, 31.9% and 20.6%, respectively.
The closing price on November 26, 2019 corresponds to the forecast PE for 2020-2022 of 15.6,11.9 and 9.8X, respectively. Maintain the "buy" rating with a reasonable valuation range of HK $5.05 to HK $6.35.
Risk hint
1. The company's expansion plan and capital operation are not as expected; 2. Regulations and policies are not as good as expected.