20210216-招银国际-希望教育-01765.HK-Acquisition_of_Gongqing_College_5页_841kb

Hope Education (1765 HK) Company Update Summary

Core Content

Hope Education, a Hong Kong-listed education company, has announced the acquisition of Gongqing College of Nanchang University for RMB500 million. This acquisition is expected to enhance its market position and provide significant growth opportunities. The company has also expressed confidence in acquiring three universities and two vocational colleges within 1-2 years, indicating a strategic expansion plan.

Main Points

Acquisition of Gongqing College

• Acquisition Cost: RMB500 million, which is considered low compared to the estimated replacement cost of RMB900 million.
• Revenue and Profit: Gongqing College had revenue of approximately RMB100 million and net profit of RMB23 million in FY20.
• Valuation: EV/student is estimated at RMB93,000 to RMB106,000, significantly lower than the industry average of over RMB100,000.
• Growth Potential: The acquisition is expected to boost student enrollment and net profit, with a target of doubling student numbers and achieving a 40% CAGR in net profit over five years.

Strategic Expansion

• The company aims to expand its presence in Jiangxi by acquiring more educational institutions.
• It has already secured a large university as an acquisition target, with revenue exceeding that of its largest existing college.

Investment Recommendation

• Maintain Buy with an updated target price (TP) from HK$3.61 to HK$3.88.
• The TP is based on a 27.3x FY21E P/E ratio, which is still at a 1x PEG.
• Key catalysts for the stock include M&A activities, unpeg of independent colleges, and removal of policy overhangs.
• Risks include potential increases in teacher costs.

Key Financials

Earnings Summary

Financial Highlights

• Revenue Growth: Expected to grow from RMB1,331 million in FY19A to RMB3,760 million in FY23E, showing a steady increase.
• Adjusted Net Profit: Projected to rise from RMB474 million in FY19A to RMB1,394 million in FY23E, with an adjusted net profit margin increasing from 35.6% to 37.1%.
• Net Cash: Expected to grow from RMB255 million in FY19A to RMB1,680 million in FY23E, reflecting improved cash flow.

Key Ratios

Share Performance

Shareholding Structure

• Credit Suisse Trust: Holds 57.86% of the shares.

Analyst Ratings

• CMBIS Rating: BUY
• Target Price (TP): HK$3.88 (Up/Downside +16% from current price HK$3.34)
• CMBIS Ratings Definitions:
  • BUY: Potential return of over 15% over next 12 months
  • HOLD: Potential return of +15% to -10% over next 12 months
  • SELL: Potential loss of over 10% over next 12 months
  • NOT RATED: Stock is not rated by CMBIS
  • OUTPERFORM: Industry expected to outperform the relevant broad market benchmark
  • MARKET-PERFORM: Industry expected to perform in-line with the relevant broad market benchmark
  • UNDERPERFORM: Industry expected to underperform the relevant broad market benchmark

Conclusion

Hope Education is positioned for growth through strategic acquisitions and expansion, with a strong financial outlook and favorable valuation metrics. The company's expansion into Jiangxi and its focus on improving educational quality and student enrollment are key drivers of its future performance. The current Buy rating reflects the potential for significant returns, supported by a favorable P/E ratio and positive growth projections.