20181206-兴证国际证券-睿见教育-06068.HK-FY_2018_Performance_beyond_Expectation,New_School_Reserves_Sufficient_for_Continuing_Growth_4页_444kb

报告摘要

Equity Research Report Summary: Wisdom Education International (06068.HK)

Core Content

This report provides an in-depth analysis of Wisdom Education International (06068.HK), a high-quality private K-12 education company, focusing on its financial performance, growth prospects, and investment rating. The report highlights the company's strong performance in FY2018 and its strategic expansion plans, which are expected to drive continued growth in the following years. The current stock price is 3.28 HKD, and the target price is 6.00 HKD, indicating a potential 83% growth in the stock.

Main Points and Key Information

Company Overview

Industry: Private K-12 education.
Strategic Focus: Expanding within the Greater Bay Area, particularly in Guangdong province.
Growth Drivers: Inner and outer expansion, including school acquisitions and self-construction.

Financial Performance (FY2018A)

Revenue: CNY 1,246.9 million, up 27.3% y-o-y, 2.5% above expectations.
Core Net Profit: CNY 322.0 million, up 29.6% y-o-y, 18.4% above expectations.
Net Profit: CNY 307.2 million, up 55% y-o-y.
Gross Margin: 43.7%, slightly decreased due to expansion but still higher than peers.
Effective Tax Rate: Significantly reduced to 11.1%, expected to remain low.
EPS: CNY 0.15, up from previous years.

Projected Financial Growth (FY2019E–FY2021E)

Revenue: Expected to grow to CNY 1,629.8M, 2,026.6M, and 2,571.0M, with annual growth rates of 30.7%, 24.3%, and 26.9%.
Core Net Profit: Projected to reach CNY 419.3M, 523.3M, and 665.9M, with growth rates of 30.2%, 24.8%, and 27.2%.
EPS: Expected to increase to CNY 0.20, 0.25, and 0.31.
Dividend Per Share: Projected to rise to CNY 0.13.
PE Ratio: Adjusted target price of 6.00 HKD implies a 25X, 20X, and 16X PE ratio for FY2019E, FY2020E, and FY2021E respectively.

Student Growth and Capacity

Total student numbers reached 43,230 by the end of August 2018, up 36% y-o-y.
Adjusted for the purchase effect, student numbers grew 15.4% y-o-y.
Student capacity increased to 92,000 by September 1st, up 85.5% y-o-y.
CAGR: Expected to be 20.4% from FY2019E to FY2021E.

Investment Highlights

Outperform rating is maintained, with a target price of 6.00 HKD.
The company has sufficient new school reserves to support continued growth.
Growth Consistency: Strong revenue and profit growth expected over the next three years.
Financial Health: Maintains a high net profit margin and ROE increasing from 11.5% to 20.1% over the forecast period.

Balance Sheet Trends

Total Assets: Projected to grow from CNY 5,471.7M (FY2018A) to CNY 7,078.9M (FY2021E).
Total Shareholder Equity: Expected to increase from CNY 1,977.3M to CNY 2,916.1M.
Reserves: Rising from CNY 1,893.0M to CNY 2,831.0M.
Debt Ratio: Expected to decline from 63.9% (FY2018A) to 58.8% (FY2021E).
Current Ratio: Declines from 0.9 to 0.5, indicating a tightening of liquidity.

Cash Flow Analysis

Net Operating Cash Flow: Expected to increase from CNY 652.0M to CNY 1,257.5M.
Net Investing Cash Flow: Negative and increasing in magnitude, reflecting continued capital investment in school expansion.
Net Financing Cash Flow: Negative in later years, indicating possible debt reduction or equity financing.
Cash-End: Expected to be CNY 963.3M by FY2021E.

Key Financial Ratios

Gross Margin: Stabilized at 43.7%–44.2%.
Net Profit Margin: Slightly improved from 24.9% to 25.3%.
ROE: Expected to increase from 15.7% to 20.1%.
PE Ratio: Expected to decrease from 18.1X to 8.7X.
PB Ratio: Expected to decrease from 2.9X to 2.0X, suggesting potential undervaluation.

Investment Rating

Company Investment Rating: Outperform.
Industry Investment Rating: Outperform (based on the assumption that the industry outperforms the market).
Rationale: Strong revenue and profit growth, strategic expansion, and sufficient school reserves to support future student growth.

Risk Factors

Policy Risks: Changes in national education policy.
Expansion Risks: School acquisitions and self-construction may lead to financial strain.
Quality Risks: Potential dissatisfaction among students and parents with teaching quality.
VIE Structure Risks: Regulatory risks related to the Variable Interest Entity (VIE) structure.

Conclusion

Wisdom Education International has demonstrated strong performance in FY2018, exceeding expectations in both revenue and net profit. The company's strategic expansion within the Greater Bay Area and its focus on K-12 private education are key growth drivers. Despite the slight decline in gross margin due to expansion, the company maintains a healthy net profit margin and improving ROE. The Outperform rating is maintained based on the expected 20.4% CAGR in student numbers and steady revenue growth over the next three years. However, the company faces regulatory and policy risks, particularly related to education reforms and VIE structure. Investors should consider these risks while evaluating the investment potential.