20180808-广发证券_香港_-枫叶教育-01317.HK-Raising_PRC-certified_teacher_salaries_by_10__Chairman_purchases_shares_6页_627kb

Maple Leaf (1317 HK) Equity Research Summary

Core Content

This report provides an equity research analysis of Maple Leaf (1317 HK), a Chinese education services company, with a recommendation of "Buy". The target price has been revised to HK$7.55. The report highlights the company's recent strategic moves and financial performance to support the investment thesis.

Main Points

Recent Developments

• Salary Increase for Teachers: Maple Leaf plans to raise the salaries of over 3,000 PRC-certified teachers by 10% effective from September 1, 2018. This is considered a one-off adjustment aimed at better incentivizing teachers.
• Share Purchases by Chairman: The Chairman, Sherman Jen, has made share purchases of 2m, 1m, and 0.5m shares at average prices of HK$6.45, HK$6.20, and HK$5.98 on August 2, 3, and 6, respectively. This is viewed as a positive signal for the company's future prospects.

Investment Thesis

• Growing Demand for Overseas Education: The report forecasts continued growth in the number of Chinese students studying abroad, with a CAGR of 9% during 2012-17.
• Competitive Positioning: Maple Leaf's established brand equity, light-asset model, and affordable tuition fee strategy are expected to help it capture more market share.
• Pyramid Structure: The company's model of students progressing through its schools to high schools allows it to increase its top university admission ratio and potentially raise tuition fees.

Financial Performance and Projections

• Revenue Growth: Revenue is projected to grow at an average rate of 26.0% from FY19E to FY20E.
• Net Profit Growth: Adjusted net profit is expected to grow from HK$516 million in FY18E to HK$808 million in FY20E.
• Margin Expansion: Operating profit margin is projected to increase from 35.4% in FY16 to 42.1% in FY20E.
• Tuition Fee Hikes: Several school districts have announced tuition and boarding fee increases for the 2018/19 school year, ranging from 17% to 50% across different levels.

Stock Valuation

• DCF Analysis: The DCF-based valuation was previously at HK$8.65, but the target price has been revised to HK$7.55, based on a PEG-based valuation of HK$6.45 (1.1x PEG or 25.6x FY19E P/E) and a DCF-based valuation of HK$8.65.
• Valuation Metrics: The company's value per share is estimated at HK$8.65 in FY18E, with a projected value of HK$7.55 due to the revised valuation approach.

Key Information

Company Overview

• Shares in Issue: 2,979.2 million
• Market Cap: HK$19.0 billion
• Average 3M Volume: 16.95 million shares
• 52-Week High/Low: HK$7.63 / HK$3.14
• Major Shareholder: Sherman Jen (50.1%)

Enrollment and Utilization

• Schools Meeting Targets: 24 out of 62 schools met their 2018/19 student enrollment targets early.
• Utilization Rate: The utilization rate is expected to increase from 64.4% in FY16 to 69.1% in FY20E.

Risks

1. Policy Risks: Changes in government policy may impact the company's operations.
2. Enrollment Misses: If student enrollment does not meet expectations, it could affect revenue and growth.
3. Margin Concerns: Lower-than-expected margins may impact profitability.

Financial Highlights (Selected)

Conclusion

Maple Leaf is positioned to benefit from the continued growth in the demand for overseas education in China. The company's strategic moves, including the salary increase and share purchases by the Chairman, are seen as positive developments. However, potential policy changes and enrollment expectations are the main risks to consider. The revised target price of HK$7.55 reflects a balanced valuation approach based on both PEG and DCF methods.