20171128-广发证券_香港_-枫叶教育-01317.HK-Strong_FY17_results_5页_592kb

Maple Leaf (1317 HK) Equity Research Summary

Core Content Overview

This report provides an equity research analysis of Maple Leaf (1317 HK), a leading education services company in China. The analysis includes financial performance, growth strategies, valuation metrics, and risk factors, with a Buy rating maintained for the stock.

Key Financial Highlights

• FY17 Performance:

  • Revenue increased by 31% to Rmb1,083m.
  • Net profit rose by 34% to Rmb411m.
  • Adjusted net profit surged by 40% to Rmb425m.
  • Gross profit increased by 34% to Rmb540m.
  • Operating profit rose by 43% to Rmb421m.
  • Adjusted EPS reached Rmb0.32, up 39% from FY16.
  • Net cash balance remained at Rmb1.5bn.

• Growth Metrics:

  • Student enrollment grew by 35% to 26,088.
  • Deferred revenue from tuition and boarding fees increased by 26%, slightly lower than student growth.
  • Average tuition fee slightly decreased to Rmb38,600, due to the inclusion of the Haikou school, which had lower tuition fees.
  • Ancillary services revenue grew by 52%, contributing 19% of total revenue.
  • Gross margin increased by 1.4pp to 49.8%, driven by tuition fee increases and higher utilization rates.
  • Operating margin expanded by 3.5pp to 38.9%, supported by cost control and higher revenue.

• Future Projections:

  • The company aims to have over 40,000 students by the end of FY20.
  • It plans to open 1-2 preschools annually in its existing 18 cities and expand primary and middle schools.
  • Targeting 30% of total revenue from ancillary services by FY20.
  • The company is aiming to expand into Shenzhen and Beijing in 2018 and 2019, respectively.

Valuation Metrics

Key Assumptions

• Revenue Growth: Expected to slow from 30.5% in FY17 to 18.5% in FY20.
• Ancillary Services Growth: Projected to increase from 19% of total revenue in FY17 to 30% in FY20.
• Gross Margin: Expected to stabilize around 49.8-51.0%.
• Operating Margin: Projected to increase to 40.4% by FY20.
• Adjusted Net Margin: Expected to remain around 36.8%.
• Effective Tax Rate: Projected to rise from 6.1% to 11.0%.
• Payout Ratio: Maintained at 40.0% for FY18E to FY20E.

Risks

1. Policy Risks: Potential regulatory changes in the education sector could impact operations.
2. Tuition Fee Growth: Tuition fee increases may be below expectations.
3. Margin Pressure: Lower-than-expected margins due to a higher proportion of preschool students.

Strategic Outlook

• Maple Leaf continues to focus on building a pyramid structure in student enrollment, emphasizing preschool, primary, and middle school students.
• It is expanding its ancillary services to increase revenue diversification.
• The company is actively pursuing market expansion, particularly in Shenzhen and Beijing.
• The Zhixin law case is progressing to the main trial stage, but no provision has been made for potential liabilities.

Conclusion

The report maintains a Buy rating for Maple Leaf, with an updated target price of HK$9.50, based on a 18.7x FY19E P/E and a 1x PEG. The company's strong performance in FY17, along with its expansion plans and strategic focus on ancillary services, supports the positive outlook. However, risks such as policy changes and margin pressures must be considered.