Steady performance, in line with expectations
The company's FY2020 revenue was 479 million yuan (+9.4%); full-caliber revenue was 650 million yuan (+26.5%), including two independent colleges that only combined profits and did not achieve revenue sharing.
Affected by the pandemic, 22 million yuan of accommodation fees was refunded. Tuition fees increased from 465 to $614 million (32.1%), accounting for 91.4% of main revenue. Due to the pandemic, offline teaching activities were reduced, which in turn reduced costs and operating expenses; gross profit was 311 million yuan (+19.1%); net profit was 325 million yuan (+20.2%), and adjusted net profit was 321 million yuan (+8.4%).
Connotative construction results are good, driving endogenous growth
The volume and price of several schools have risen sharply this year. The total number of students enrolled is 46,400 (+2.6%), and the average tuition fee has risen. Content construction has achieved remarkable results, the student structure has improved, the proportion of undergraduate students, school-enterprise cooperation and the proportion of students majoring in special majors has increased; increased capacity to run schools has led to an increase in enrollment plans, especially in special promotion programs; and the registration rate for new students has increased. Looking at schools, two majors at Anhui Xinhua University were selected as first-class undergraduate students in the country, and five were selected as first-class undergraduate construction sites at the provincial level. The School of Clinical Medicine put 185,000 square meters of classroom space into use in the 2021 new school year. Hongshan University added new majors in engineering, art, and education on the basis of business.
The conversion of independent colleges continues to advance, and room for growth can be expected
The two independent colleges are expected to receive approval from the Ministry of Education to complete the transfer within this year. Among them, the School of Clinical Medicine was approved by the Provincial Department of Education in early March; Hongshan College is expected to be approved by the Provincial Department of Education in the second quarter. The transfer of the two schools will no longer be required to pay any separation fees. Once the relocation is completed, on the one hand, the scale of operation of the school and the level of tuition fees will continue to rise; on the other hand, since the two schools have not yet shared their income, the completion of the transfer will bring a significant increase in revenue to the Group.
Maintain a reasonable valuation range and “buy rating”
The company's revenue forecast for FY2021 was lowered slightly, and the profit forecast for FY2021-2022 was raised. Revenue for FY2021-2023 is expected to be $572, 720, and $796 million. FY2021-2023 net profit was $362, 4.68, and $523 million, respectively. The closing price on April 9 was HK$2.24, corresponding to the 2021-2023 PE forecast of 8.34/6.45/5.77 times, respectively. Maintain the company's “buy” rating and a reasonable valuation range of HK$3.50 to HK$4.07.
Risk warning:
The construction of the new campus fell short of expectations; enrollment fell short of expectations; the relocation progress fell short of expectations.