20171030-广发证券_香港_-枫叶教育-01317.HK-Solid_student_enrolment_growth_and_positive_profit_alert_5页_591kb

Maple Leaf (1317 HK) Equity Research Summary

Core Content

Maple Leaf (ML), a Chinese education service provider, is currently rated Buy by GF Securities (Hong Kong) with a target price of HK$9.10. The report highlights the company's strong performance and growth trajectory in the 2017/18 school year, driven by increased student enrollment and improved financial metrics.

Key Performance Highlights

• Student Enrolment Growth:

  • Total student enrolment increased by 24% from 22,693 as of March 31, 2017, to 28,111 as of October 15, 2017 (an increase of 37% YoY).
  • The company is on track to reach its target of 30,000 students by the end of June 2018.
  • Enrolment growth was primarily driven by primary and middle school students.

• Profit Growth:

  • ML expects FY17 net profit to grow by no less than 30% YoY, with Bloomberg consensus projecting 41% growth to Rmb392m.
  • FY18 net profit is estimated to rise by 22.9% compared to FY17, with FY19E projected to grow by 16.3%.

• Tuition Fees:

  • Tuition fees for primary schools such as Huai'an, Yancheng, and Dalian are below Rmb30,000/year, which is lower than the company's average tuition fee of around Rmb40,000/year in 1H17.
  • Some schools, like Wuhan and Shanghai, have higher tuition fees, with Shanghai reaching up to Rmb100,000/year for high school.

Financial Projections

Valuation Metrics

Key Assumptions and Ratios

• Gross Margin: Expected to fall by 0.9pp in FY18 due to a decrease in utilization rate.
• Operating Profit Margin: Projected to be 37.5% in FY17, with a slight decline in subsequent years.
• Marketing and Administrative Expenses Ratios: Both are expected to decrease slightly over time.
• Utilization Rate: Stabilized around 60.8% in FY17.
• Student to Teacher Ratio: Maintained at around 10.5–10.7.
• Payout Ratio: Stabilized at 40% across all years.

Comparative Analysis

Analyst Ratings and Definitions

• Buy: Stock expected to outperform the benchmark by more than 15%.
• Accumulate: Stock expected to outperform the benchmark by 5–15%.
• Hold: Stock expected to have a relative performance of -5% to 5%.
• Underperform: Stock expected to underperform the benchmark by more than 5%.

Sector Rating

• Positive: Sector expected to outperform the benchmark by more than 10%.
• Neutral: Sector expected to have a relative performance of -10% to 10%.
• Cautious: Sector expected to underperform the benchmark by more than 10%.

Summary of Key Points

• Enrolment Growth: Strong and on track for the company's target of 30,000 students by end-June 2018.
• Profit Expectations: Net profit is expected to grow significantly in FY17, with revised estimates for FY18 and FY19.
• Valuation: The target price has been raised due to improved growth expectations and lower valuation multiples.
• Competitive Position: ML is preferred over Wisdom Education (6068 HK) for its growth potential, although Wisdom Education has more visible growth in Guangdong due to its brand reputation.
• Financial Health: The company maintains a stable payout ratio and shows consistent improvements in ROE and net profit margin.

Analyst Certification and Disclosure

• The research analyst certifies that all views accurately reflect their personal opinion.
• GF Securities (Hong Kong) has no proprietary holdings or investment banking relationships with the company.
• The report is for informational purposes only and does not constitute an investment recommendation.

Disclaimer

• This report is not intended as an offer to buy or sell securities.
• The information is subject to change without notice.
• No liability is accepted for losses arising from the use of this report.
• Investments involve risks, and past performance does not guarantee future results.