Wise Vision Education announced that its revenue in the first half of fiscal year 20 (up to the end of August) was 932 million yuan, an increase of 11.6% over the same period last year, and its adjusted net profit was 288 million yuan, an increase of 33.2% over the same period last year, which was higher than our expectation. This is mainly due to the increase in operating profit margin.
The company transferred the courses online to respond quickly to the COVID-19 epidemic, and the company will continue to develop its online education business in the future.
The company uses a light-asset model to increase the number of students it can accommodate more quickly by leasing existing properties from the government or villages for school purposes without generating significant capital expenditure.
Over the next few years, the company will focus on endogenous growth, improve school utilization, accommodate student numbers, and average tuition fees.
Raised to "overweight", the new discounted cash flow is priced at HK $4.10.
The performance in the first half of FY20 (the year ended August) was better than expected. Wise Education announced that revenue in the first half of FY20 (the year ended August) was 932 million yuan, an increase of 11.6% over the same period last year. This is due to an increase of 15.9% in tuition and accommodation income. During the period, the number of students increased by 10.5% compared with the same period last year, of which 9.2% came from endogenous growth, and another 972 freshmen came from four new schools. Gross profit margin during the period increased by 1.4 percentage points year-on-year to 46.7%.
Due to better-than-expected cost control, wise vision education's operating profit margin during the period was 39.2%, an increase of 9.1% over the same period last year, which was higher than we expected. The company's adjusted net profit during the period was 288 million yuan, an increase of 33.2% over the same period last year.
COVID-19 's epidemic situation helps to speed up online education
Through its IT subsidiary, established in November 2017, Vision Education enabled its online classroom to respond quickly to the COVID-19 epidemic.
Through this opportunity, the company will continue to develop its online education system, including personalized learning software, after-school tutoring service, online classroom open to the public and online education e-commerce platform. Insight Education has provided online personalized English learning services, examination services and summer learning services for students, and will provide cloud classrooms, online learning platforms and resource platforms.
Light asset model helps rapid expansion
In addition to acquiring schools and building new schools on its own, Vision Education is looking for existing properties to be used as schools to develop new schools.
Wise Vision Education will open two new light-asset-operated schools in Dongguan and Foshan in the 2020max 2021 school year. Based on its successful experience in school management, Vision Education is exploring opportunities to provide educational management services to other Kmur12 or higher education institutions.
Healthy endogenous growth
Insight Education will focus on endogenous growth in the next few years: 1). Increase the utilization rate and capacity of the school; 2). The average tuition fee increase in 2020 will reach a high number of units in the 21 academic year; 3). Achieve income diversification through service upgrading and online education; and 4). Continuously control costs under the improvement of brand awareness. Visionary Education currently has about 70,000 students, only 55 per cent of the capacity of the top 127000 students in its school. The company is building two new schools with a total capacity of 155000 students in Jiangmen City and Chaozhou City, and will start school in the 22nd school year in 2021.
Upgraded to "overweight" rating, the new discounted cash flow target price of HK $4.1 We have raised our core net profit forecasts for the fiscal year 20-22 (for the year ended August) by 12.6%, 9.5% and 9.8%, respectively, to reflect higher-than-expected operating profit margins. We value the education of insight because: 1). The school is located in the Great Bay area, which is conducive to the strong growth of enrollment; 2). The potential to double the capacity of the school; 3). The light asset model can be used for future expansion.
The main risks are: 1). COVID-19 epidemic spread for a longer time, and 2). Any negative policies from the government.