Yuhua Education Research Report Summary
Core Content
This research report provides an in-depth analysis of Yuhua Education's financial performance and investment outlook for FY2018 and future fiscal years. The report highlights the company's strong performance, strategic growth, and potential for future expansion.
Investment Recommendation
- Investment Rating: Buy
- Target Price: 6.6 HKD
- Price-to-Earnings (PE) Ratio: 25x (2019E) and 22x (2020E)
- Upward Potential: 99%
Key Financial Highlights
| Metric |
FY2018A |
FY2019E |
FY2020E |
FY2021E |
| Revenue (millions RMB) |
1,195 |
1,543 |
1,722 |
1,867 |
| YOY Growth (%) |
41.2 |
29.1 |
11.6 |
8.4 |
| Adjusted Net Income (millions RMB) |
609.1 |
770.2 |
873.8 |
979.7 |
| YOY Growth (%) |
41.7 |
26.4 |
13.5 |
12.1 |
| Gross Profit Margin (%) |
56.1 |
56.1 |
56.2 |
57.3 |
| Net Profit Margin (%) |
49.2 |
49.2 |
51.8 |
53.6 |
| ROE (%) |
15.6 |
18.3 |
19.3 |
19.4 |
| Adjusted EPS (RMB) |
0.19 |
0.24 |
0.27 |
0.30 |
| Dividend Per Share (HKD) |
11.1 |
12.4 |
14.6 |
16.4 |
Market Data
| Metric |
Value |
| Date |
2018.12.3 |
| Closing Price (HKD) |
3.31 |
| Total Shares (billions) |
32.00 |
| Market Cap (billions HKD) |
108 |
| Net Asset (billions RMB) |
37.6 |
| Total Asset (billions RMB) |
61.3 |
| Net Asset per Share (RMB) |
1.15 |
Investment Highlights
- Strong FY2018 Performance: Revenue reached 1.2 billion RMB (YOY +41.2%), net profit of 588 million RMB (YOY +87.5%), and adjusted net profit of 609 million RMB (YOY +41.7%).
- Growth Momentum: The company maintains strong organic growth, with a two-wheel drive strategy focusing on universities and K-12 education.
- Cash Reserves: Abundant cash and equivalents, with 1.6 billion RMB as of August 31, 2018, and nearly 1.5 billion RMB in tuition fees after September, expected to exceed 3 billion RMB in total.
- School Quality: High-quality schools, with eight students admitted to Tsinghua and Peking Universities in 2018.
- Future Revenue Projections: Expected to reach 1.54 billion RMB in FY2019 (up 29.1%) and 1.72 billion RMB in FY2020 (up 11.6%).
- Adjusted Net Profit: Expected to be 770 million RMB in FY2019 (up 26.4%) and 870 million RMB in FY2020 (up 13.5%).
School Composition
- Kindergarten: 5.2% of revenue
- Primary School: 44.0% of revenue
- University: 50.8% of revenue
Operational Improvements
- Synergy Efficiency: Increased, with administration expense rate dropping by 630 bps to 11.1%.
- Net Margin: Improved to 49.2% in FY2018, up 1210 bps from the previous year.
- Adjusted Net Margin: Increased to 51% in FY2018, up 20 bps year-on-year.
- Tax Rate: Expected to remain low due to delayed implementation of for-profit registration in Hunan Province until 2022.
Risk Factors
- Policy Changes: National education policy changes may impact operations.
- Expansion Risks: Company's acquisition and self-construction activities may face challenges.
- Teaching Quality: Potential dissatisfaction among students and parents.
- VIE Structure Risks: Regulatory risks related to Variable Interest Entity (VIE) structure.
Balance Sheet (in millions RMB)
| Metric |
FY2018A |
FY2019E |
FY2020E |
FY2021E |
| Current Asset |
2,306 |
2,401 |
3,049 |
3,712 |
| Cash and Equivalents |
1,593 |
1,690 |
2,335 |
2,996 |
| Total Asset |
6,132 |
6,222 |
6,865 |
7,525 |
| Total Liability |
2,373 |
2,061 |
2,235 |
2,369 |
| Total Shareholder Equity |
3,759 |
4,161 |
4,630 |
5,155 |
Cash Flow Statement (in millions RMB)
| Metric |
FY2018A |
FY2019E |
FY2020E |
FY2021E |
| Net Income |
592 |
788 |
923 |
1,040 |
| Depreciation & Amortization |
102 |
155 |
155 |
154 |
| Net Operating Cash Flow |
750 |
826 |
1,213 |
1,281 |
| Net Investing Cash Flow |
-562 |
-150 |
-150 |
-150 |
| Net Financing Cash Flow |
764 |
-580 |
-417 |
-470 |
| Net Change in Cash |
951 |
96 |
645 |
661 |
Key Financial Ratios
| Metric |
FY2018A |
FY2019E |
FY2020E |
FY2021E |
| Revenue Growth (%) |
41.2 |
29.1 |
11.6 |
8.4 |
| Adjusted Net Income Growth (%) |
41.7 |
26.4 |
13.5 |
12.1 |
| Gross Margin (%) |
56.1 |
56.1 |
56.2 |
57.3 |
| Net Margin (%) |
49.2 |
49.2 |
51.8 |
53.6 |
| Current Ratio |
113.3 |
139.3 |
160.7 |
182.8 |
| Quick Ratio |
78.3 |
98.1 |
123.1 |
147.5 |
| Net Operating Cash per Share (RMB) |
0.23 |
0.25 |
0.37 |
0.39 |
| Net Asset per Share (RMB) |
1.14 |
1.28 |
1.42 |
1.58 |
| PE Ratio |
15 |
12 |
11 |
10 |
| PB Ratio |
2.4 |
2.1 |
1.9 |
1.7 |
Investment Rating Definitions
- Industry Investment Rating:
- Overweight: Industry outperforms the market.
- Neutral: Industry performs similarly to the market.
- Underweight: Industry underperforms the market.
- Company Investment Rating:
- Buy: Company's stock outperforms the market by more than 15%.
- Outperform: Company's stock outperforms the market by 5% to 15%.
- Neutral: Company's stock performs within 5% of the market.
- Underperform: Company's stock underperforms the market by more than 5%.
Information Disclosure
- The report is based on public information and the Company fulfills its duty of disclosure.
- Clients may refer to the "Insider Trading Prevention and Control" section on the Company's website for quiet period and affiliate shareholding details.
Disclaimer
- The report is prepared by a qualified securities investment consulting business.
- It is distributed in Hong Kong by China Industrial Securities International Brokerage Ltd.
- The report is not an invitation for the sale or purchase of any securities.
- The views in the report may change, and the Company has no obligation to update the information.
- The report may contain hyperlinks to external websites, which are provided for reference only.
- The Company does not guarantee the authenticity, accuracy, or completeness of the information used.
- Unauthorized use or redistribution of the report is prohibited.
