Due to better-than-expected gross profit margin and operating cost control, net profit in fiscal 2020 rose 42 per cent year-on-year to 512 million yuan, 10 / 5 per cent higher than our / market consensus. We believe that some expenditures, such as teacher fees and social security costs, were temporarily saved during the epidemic in the second half of fiscal year 2020 and may rebound in fiscal year 2021. As a result, we slightly increased our net profit for fiscal year 22 by 2% or 1%. The company's current share price is equivalent to 11.6 times forecast earnings for fiscal 2021, below the K12 peer's average of 14.6 times. Its 2021 fiscal year forecast PEG is also lower than the peer's average of 0.7 times. We think the valuation is attractive and unreasonable.
The open position of the Ministry of Education on legal compliance related party transactions of non-profit private school operators is good for K12 formal education. Maintain the buy rating.
Performance highlights. Revenue grew by 7%, in line with our expectations, but 4% lower than market expectations. In the second half of the 2020 fiscal year, income growth slowed to 3 per cent from 12 per cent in the first half of the year, as the 30 million yuan accommodation fee refund and ancillary services business were affected by the epidemic. Gross profit margin rose 4.3 percentage points to 48.4%, 3.6 percentage points higher than our / market expectations, due to lower teacher duty fees and social security fees during the epidemic. In addition, the growth rate of revenue from the ancillary services business with low profit margins fell 4 percentage points to 27.9%. Due to the strengthening of cost control, the rate of sales and administrative expenses decreased by 1.1 percentage points to 15.5%.
High growth potential. The management plan is to add three new K12 schools (Chaozhou, Jiangmen and Zhongshan) in fiscal year 2021 and Bazhong Guangzheng Institute of Science and Technology in fiscal year 2022. The maximum enrollment capacity of existing and planned new schools will exceed 173 870, equivalent to 159 per cent of the current 67162 students.
An ambitious three-year plan. We expect the company to become a diversified education group (including K12, online education and higher education) in the medium term. Management plans to reach 150000 students (including acquisitions, schools under management and new schools with heavy and heavy assets) within three years, meaning a three-year compound growth rate of 28 per cent. We predict that registered students will grow at a compound annual rate of 11% in the 2020-23 fiscal year, and we expect the company to have more acquisitions and new projects.
The annual capital expenditure is 1 billion yuan or more. In fiscal year 2020, the net debt ratio was 41%, which still has room to rise.
Maintain the buy rating. We slightly raised our forecast net profit for fiscal year 22 by 2% and 1% to reflect the lower rate of sales and administrative expenses. Earnings per share are still forecast to grow at a compound annual growth rate of 25 per cent for fiscal year 2019-22. Our target price has been raised from HK $5.61 to HK $5.80, which is equivalent to 17.7 times forecast earnings for fiscal year 2021 and is still equivalent to 0.7 times PEG. Catalysts: (1) government approval of higher vocational college projects; (2) new projects and acquisitions; (3) elimination of policy risks. Risks: (1) policy risks; (2) surge in teacher costs