Key points of investment
The Group's FY20 full-caliber revenue was +26.5%, and the normalized adjusted net profit was +15.6%, maintaining a 30% dividend rate.
FY20 Group's total revenue (including Hongshan and Medical School) increased 26.5% year-on-year to 650 million yuan; regardless of the two new schools, the company's revenue was +9.4%, and endogenous growth remained steady. Looking at the revenue split, the tuition income of the two old schools increased 14.3% year over year to 448 million. Accommodation fee revenue was affected by the epidemic refund, -32.3% over the same period last year to 0.3 million.
The adjusted net profit during the period reached +8.4% year-on-year, accounting for 67% of revenue; excluding the impact of the epidemic, the company's normalized adjusted net profit increased 15.6% year-on-year to 340 million yuan. The company maintained a 30% dividend rate during the period.
The number of full-time students enrolled reached 42,541, an increase of 6.8% over the previous year; after the implementation of the new campus, the group plans to have 80,000 full-time students. The number of students enrolled during the group period increased 2.6% year-on-year to 46,415, and the number of full-time students enrolled increased 6.8% year-on-year to 42,541, and the company's undergraduate students accounted for 72.8%. Number of students: 2020 undergraduate enrollment plan +19.2% year over year, number of new registrants +21.8% year over year, and 2021 special upgrade enrollment plan +22% year over year. As the new campuses advance, the company's four universities plan to have a total of 80,000 full-time students, with a potential growth of 88%. Tuition fees: In the context of the pandemic, tuition fees for the 2020 academic year have remained relatively stable, and with the transition to Hongshan College and the School of Clinical Medicine, its tuition fees for the 2021 academic year are expected to increase significantly.
The cost and expense ratio is properly controlled, and the balance ratio remains stable. The company's main business costs fell 4.9% year-on-year to 168 million yuan during the period. Mainly due to the impact of the epidemic, all operating results declined. The sales expenses rate was +0.5pct compared to the previous year. The increase in admissions promotion fees was mainly due to increased brand promotion after the pandemic. The administrative fee rate fell to 13.9%, mainly due to the reduction in operating expenses and the increase in exchange earnings during the period due to the pandemic. The Group's capital debt ratio is basically stable. All upfront costs and part of the project payments for the land and part of the construction projects for the two independent colleges have been paid, and the amount of related expenses will be gradually reduced starting in 2021.
Our opinion: The number of students within the group is growing steadily, and in the context of enrollment expansion, the company has achieved a significant increase in the number of college upgrades in the past two years. The company's student structure continues to be optimized. The number of undergraduate students exceeds 70%. The relatively high tuition fees can make up for the decline in college. Furthermore, the company's overall tuition fees are low, and there is great potential for growth. As the two new schools are transferred and merged, the new campus can free up campus capacity while also achieving double-digit growth in tuition fees.
We adjusted the company's 2021-2023 revenue to $55/ $56/65/ 760 million, full-caliber revenue to $8/997/1.15 billion, and our core net profit is expected to reach $375/45/556 million. Maintain the target price of HK$3.2, corresponding to 12/10 times PE in 21/222, maintaining the “buy” rating.
Risk warning: 1) acquisition integration falls short of expectations; 2) changes in China's education policy; 3) enrollment numbers fall short of expectations; 4) company revenue comes from a few cities in China; 5) VIE structure policy risks.