20170912-招商证券_香港_-睿见教育-06068.HK-Simple_is_still_beautiful._We_expect_re-rating_to_continue_13页_1mb_1mb

Wisdom Education (6068 HK) Summary

Core Content

This report provides an analysis of Wisdom Education (6068 HK) from China Merchants Securities (HK) Co., Ltd., focusing on the company's performance and future outlook in the education sector. The report highlights the positive momentum in the company's growth and the potential for continued re-rating due to various catalysts.

Main Points

• Policy Reassurance: Officials in Guangdong have reassured private schools that the new education policy will not disrupt operations, with the license delayed to next year but all plans will proceed. Schools that have operated legally will continue to operate, and the VIE structure is permitted.

• Share Price Performance: Wisdom's share price has risen by 47% since August and 24% since September, driven by strong September 2017 student figures and reduced policy fears.

• Sector Re-rating: The report suggests that the education sector is undergoing a re-rating, and Wisdom is a top pick due to its high earnings transparency and strong performance.

• Student and Tuition Growth: The report highlights the strong student growth and tuition fee hiking ability from newly established schools, which boosts investor confidence in the company's expansion capabilities.

• Catalysts for Growth: Multiple catalysts are expected to drive the share price further, including:

  • Dampening fears around the new policy
  • Strong FY17E results
  • Inclusion in the Stock Connect program
  • Acquisitions in Guangdong in FY18E

• Investment Recommendation: The report maintains a BUY recommendation, with the target price raised to HK$4.68, representing a 15% potential upside from the previous price of HK$4.06.

Key Financial Highlights

Earnings Revisions

• FY18E and FY19E earnings have been increased by 9% and 23%, respectively, due to higher student enrollment and tuition fee growth.
• The Jieyang School is expected to contribute significantly, with 4,500 students as of September 2017 and a projected 25% OPM for FY18E, which is lower than the group's pre-acquisition 32% OPM, but expected to reach group level in FY19E.

Revenue Breakdown

• Tuition Fee Revenue contributes 70% of total revenue in FY18E and is expected to grow by 32.3%.
• Ancillary Services contribute 30% of total revenue in FY18E, with a growth rate of 13.5%.
• The average tuition fee per student is projected to increase to RMB 23,450 in FY19E.

Student Enrollment

• Total student enrollment is expected to grow to 47,454 by FY19E, with a 15.2% YoY growth.
• High School Students are projected to increase to 10,262 in FY19E, with a 11.3% YoY growth.
• Middle School Students are expected to reach 21,491 in FY19E, with a 15.9% YoY growth.
• Primary School Students are projected to increase to 15,349 in FY19E, with a 17.6% YoY growth.
• International Program Students are expected to remain relatively stable, with a 0.0% YoY growth in FY19E.

School Capacity and Utilization Rates

• Total capacity is expected to reach 54,104 students by FY19E, with an 87.7% utilization rate.
• Dongguan Guangming Secondary School has a 10,744 student capacity, with a 97.9% utilization rate.
• Dongguan Guanming Primary School has a 6,060 student capacity, with a 100.0% utilization rate.
• Dongguan Guangzheng Preparatory School has a 15,226 student capacity, with a 90.0% utilization rate.
• Huizhou Guangzheng Preparatory School has a 9,464 student capacity, with an 86.9% utilization rate.

Shareholding Structure

• Liu Xuebin holds 45.65% of shares.
• Li Suwen holds 27.98% of shares.
• Total shares outstanding: 2,039 million.
• Free float: 26%.

Related Research

• China School Operators sector report: Highlights the demand for better education driving the private education sector.
• Site visits takeaways (June 5, 2017): Indicates that the company is on track to deliver stable growth.
• Unlocking value (May 15, 2017): Suggests the company is a leading laggard with potential for value unlocking.
• Maple Leaf Education (1317 HK): Also expected to benefit from sector re-rating due to dampening policy fears.

Conclusion

Wisdom Education is positioned for continued growth and re-rating due to its strong financial performance, policy reassurance, and strategic focus on expansion in Guangdong. The report emphasizes the company's potential for further share price appreciation, supported by multiple catalysts and a revised target price.