Wisdom Education (6068 HK) Summary
Core Content
Wisdom Education is a Hong Kong-listed company operating in the education sector. The report highlights positive site visits and the potential for continued growth, despite investor concerns about the new education policy. The company is expected to benefit from a reduction in effective tax rate starting in FY18E, which could lead to improved earnings. The report also provides financial performance data and key metrics to evaluate the company's financial health and growth prospects.
Main Points
- Site Visit Impression: The two visited schools, Dongguan Guangming and Dongguan Guangzheng, are noted for their better facilities and teaching staff compared to public schools. This contributes to higher student quality, with 95% of students admitted to universities and 23% to first-class universities, significantly above the Guangdong average of 10%.
- New Education Policy Impact: Starting from September 2017, all of Wisdom's grade 1-9 schools will be reclassified as non-profit, leading to a reduction in the effective tax rate from 25% in FY17E to 15% in FY18E. This is expected to boost earnings growth.
- Investor Concerns: Investors are concerned about the viability of new schools in less affluent cities, such as Weifang Guangzheng. However, Wisdom remains confident due to the undersupply of quality private schools, government support, and the ability to attract top teachers and students.
- Financial Performance:
- Revenue is expected to grow significantly, with a CAGR of 25% from FY16 to FY19E.
- Recurring net profit is projected to increase from RMB 182 million in FY17E to RMB 347 million in FY19E.
- EPS (recurring) is forecasted to rise from RMB 0.11 in FY17E to RMB 0.17 in FY19E.
- Valuation: The target price is HK$3.39, with a 20x FY18E P/E ratio. This is in line with Maple Leaf Education's current P/E ratio, indicating potential for re-rating in the sector.
- Sector Context: The company is categorized under Consumer Discretionary, with a market cap of HK$5.8 billion and an average daily trading volume of 6.31 million shares.
Key Financial Metrics
| Metric |
FY15 |
FY16 |
FY17E |
FY18E |
FY19E |
| Revenue (RMB mn) |
569 |
701 |
988 |
1,112 |
1,296 |
| Net profit - recurring (RMB mn) |
182 |
179 |
229 |
300 |
347 |
| EPS (RMB) - recurring |
0.09 |
0.09 |
0.11 |
0.15 |
0.17 |
| P/E (x) - recurring |
28.3 |
28.9 |
22.5 |
17.2 |
14.9 |
| P/B (x) |
7.6 |
6.2 |
2.6 |
2.4 |
2.2 |
| ROAE (%) |
30.8 |
20.5 |
15.8 |
14.4 |
15.2 |
Revenue Breakdown by Business Segment
| Segment |
FY15 |
FY16 |
FY17E |
FY18E |
FY19E |
| Tuition fees (RMB mn) |
442 |
550 |
693 |
778 |
907 |
| Ancillary services (RMB mn) |
126 |
151 |
295 |
335 |
388 |
| % of total revenue |
78% |
79% |
70% |
70% |
70% |
Student Enrollment and Growth
| School |
FY15 |
FY16 |
FY17E |
FY18E |
FY19E |
| Dongguan Guangming Secondary School |
3,362 |
2,908 |
2,744 |
2,656 |
2,656 |
| Dongguan Guangming Primary School |
4,367 |
5,130 |
5,959 |
5,973 |
6,017 |
| Dongguan Guangzheng Preparatory School |
4,151 |
5,820 |
7,768 |
9,094 |
10,238 |
| Huizhou Guangzheng Preparatory School |
256 |
1,189 |
2,500 |
3,903 |
4,684 |
| Panjin Preparatory School |
0 |
282 |
1,000 |
1,590 |
2,188 |
| Weifang Guangzheng Preparatory School |
0 |
0 |
0 |
718 |
1,436 |
| Total Students |
10,630 |
10,466 |
10,532 |
10,744 |
10,744 |
School Utilization Rates
| School |
FY15 |
FY16 |
FY17E |
FY18E |
FY19E |
| Dongguan Guangming Secondary School |
99.1% |
98.4% |
99.4% |
93.1% |
93.1% |
| Dongguan Guangming Primary School |
89.9% |
93.3% |
98.3% |
98.6% |
99.3% |
| Dongguan Guangzheng Preparatory School |
62.0% |
81.5% |
85.9% |
93.7% |
75.8% |
| Huizhou Guangzheng Preparatory School |
27.1% |
61.7% |
72.2% |
97.0% |
58.5% |
| Panjin Preparatory School |
0.0% |
41.0% |
68.7% |
85.2% |
87.5% |
| Weifang Guangzheng Preparatory School |
0.0% |
0.0% |
0.0% |
95.5% |
35.9% |
Key Takeaways
- The company's growth trajectory is supported by its strong student quality and improved financial performance.
- The new education policy is expected to reduce the effective tax rate, thereby increasing profitability.
- Investor concerns about new schools are addressed by the company's strategy and government support.
- The company's financial metrics show a consistent upward trend in revenue and net profit.
- The stock is recommended as a "BUY" with a target price of HK$3.39, indicating positive outlook.
