Main points of investment
The excellent school-running quality and off-site replication ability of schools in the Greater Bay area are the core competitiveness of the company:
Wise Vision Education is the largest private K12 education group in South China, with a total enrollment of 60116 students and 12 campuses in 2019. The scale of income and net profit in 2019 was 1.68 billion yuan and 360 million yuan respectively. The company has excellent performance in running schools in the Great Bay area, and the single school is large in scale. Dongguan Guangming ranks among the top three in local private schools; the admission score of Huizhou Guangzheng Public Class Middle School entrance examination ranks first in Huizhou, surpassing the local public Huizhou No. 1 Middle School; and the score line of Sunshine Central examination continues to improve. The maturity of Dongguan Guangming and Huizhou Guangzheng School provides a sufficient reserve of teachers for the opening of new schools. The company provides teachers with higher salaries than public schools, a sound promotion mechanism and benefits to enhance the attractiveness of talents.
New construction + capacity expansion + fee increase defines the space for endogenous growth, and the business tentacles extend to higher education:
In the past two years, the expansion of the company's school network has focused on Guangdong-Hong Kong-Macau Greater Bay Area. Schools in Guangdong Province in 19 years include Yunfu Guangming and Shunde Guangzheng. The growth rate of enrollment in the 2021 and 2022 academic years is expected to improve significantly, with a conservative forecast of an average annual increase of 8000-10000. By the middle of 2020, its school has a capacity of 70000, and the maximum capacity of the school currently in operation is 127000. The existing school expansion space provides a solid foundation for endogenous growth. Currently, the company's preparatory projects include Jiangmen School and Chaozhou School (with a total capacity of 15500 students) expected to open in the 2021 Universe 22 school year, as well as planned Guangzhou School, Zhaoqing School and Dongguan / Foshan School, a light asset project, with an average of 1-2 new K12 schools per year.
The capacity of private K12 in Greater Bay area is considerable, so it is difficult for the public to cover incremental reading requirements with a high proportion:
It is estimated that Guangdong has a large inflow of population into second-tier cities such as Dongguan and Foshan, and the public coverage of the demand for new places can only reach 50%. The original educational resources in Zhongshan, Huizhou and other places are difficult to meet the new demand, and the supply of public places exceeds the demand. High-quality education resources are scarce in low-line cities in the province, and high-quality private schools have space.
For the first time, the buy rating is given, with a target price of HK $4.1:
We believe that the current price has to a certain extent reflected its policy risk and the difference with the expansion model of companies in the same industry. It is expected that the company will continue to benefit from the development of the Greater Bay area. The total revenue of 2020 Universe 21Universe 22E is 18.8 / 23.5 / 2.85 billion yuan respectively, and the net profit of homing mother is 4.1 / 5.2 / 630 million yuan, a year-on-year increase of 13.3% / 28.1% and 20.7%. According to the segment valuation method, the target price is HK $4.10, corresponding to 15 times PE of 2021E, an increase of 35 per cent from the current price, covering the "buy" rating for the first time.