20171110-招商证券_香港_-Positive_outlook_but_current_valuation_fair_8页_1mb

Bright Scholar Education (BEDU US) Summary

Core Content

Bright Scholar Education (BEDU US) is a Chinese education operator that has shown a significant turnaround in its financial performance. The company's earnings improved from a RMB36mn loss in FY16 to a RMB189mn profit in FY17, driven by student growth and improvements in gross profit margin (GPM). The company's positive outlook remains, with continued growth expected in the coming years.

Main Points

• Earnings Turnaround: BEDU US experienced a strong earnings turnaround in FY17, with recurring earnings turning from a loss to a profit of RMB189mn, in line with consensus estimates.
• Revenue Growth: FY17 revenue reached RMB1.328bn, up 27.7% YoY, primarily due to student growth across all school types.
• GPM Expansion: GPM increased to 35.2% in FY17, driven by tuition fee increases and a better student-teacher ratio.
• Student Growth: International, bilingual, and kindergarten schools all reported student growth of 14–15% YoY, with average tuition fee growth of 4%–9% YoY.
• Outlook: The company plans to continue increasing student numbers, which will drive revenue and GPM growth. It is expected to add 12 schools in FY18E, including a new kindergarten acquired in 3Q17.
• Financial Projections:
  • FY18E revenue is projected to increase by 21% YoY to RMB1.602bn.
  • FY18E GPM is expected to rise by 1ppt to 36.0%.
  • FY18E recurring net profit is projected to be RMB328mn, with a growth rate of 73.8% YoY.
  • FY19E recurring net profit is projected to be RMB577mn, with a growth rate of 75.6% YoY.
• Valuation: The company's share price increased over 100% since its IPO in May 2017. Despite the positive outlook, the current valuation is considered fair, leading to a downgrade from BUY to NEUTRAL.
• Target Price: The target price was lifted from US$15.35 to US$21.80, aligning with the sector average PEG.

Key Financial Information

Valuation Analysis

• Share Price Performance: BEDU US share price has risen more than 100% since its IPO in May 2017.
• Rating Change: The rating was downgraded to NEUTRAL from BUY due to fair valuation.
• Target Price: The target price was raised from US$15.35 to US$21.80, aligning with the sector average PEG.
• Sector Comparison:
  • PEG (FY17-19E EPS CAGR): 1.3x for BEDU US vs 1.2x for the sector average.
  • P/E (GAAP): 99.7x in FY17, decreasing to 57.4x in FY18E and 32.7x in FY19E.
  • P/B (GAAP): 16.0x in FY17, decreasing to 12.4x in FY18E and 8.9x in FY19E.

Student Growth and Tuition Fees

• Total Students: Increased from 25,863 in FY16 to 29,748 in FY17.
• Learning Centers: Student growth was 51% YoY to 3,616 in FY17.
• Tuition Fees:
  • International schools: RMB80,487 in FY17, with a 3.5% YoY increase.
  • Bilingual schools: RMB31,344 in FY17, with a 9.1% YoY increase.
  • Kindergartens: RMB30,362 in FY17, with an 8.2% YoY increase.

Revenue Breakdown

• International Schools: Revenue increased to RMB506mn in FY17, with 15% YoY student growth.
• Bilingual Schools: Revenue increased to RMB413mn in FY17, with 15% YoY student growth and 9% YoY tuition fee increase.
• Kindergarten: Revenue increased to RMB312mn in FY17, with 14% YoY student growth and 8% YoY tuition fee increase.
• Complimentary Education Services: Revenue increased to RMB97mn in FY17, with a 166.5% YoY growth.

Market Position and Shareholding

• Sector: Consumer Discretionary.
• Market Cap: US$2,842mn.
• Shareholding Structure:
  • Bright Scholar Management: 85%
  • Hillhouse Capital: 4%
  • Serenity Capital: 3%
  • Free float: N/A

Key Research and Related Reports

• China School Operators Sector Report: Highlights the demand for better education driving the private education sector.
• Bright Scholar Education (BEDU US) Report: Initially rated BUY, later downgraded to NEUTRAL due to fair valuation.

Figures and Tables

• Figure 1: Earnings revisions show changes in estimates and actual results.
• Figure 2: FY17 results summary highlights revenue and profit growth.
• Figure 3: Historical and estimated profit and loss summary.
• Figure 4: Historical and estimated total number of schools.
• Figure 5: Historical and estimated student enrollment.
• Figure 6: Historical and estimated average tuition fees.
• Figure 7: Historical and estimated major GPM parameters.
• Figure 8: Valuation of listed China education operators.
• Figure 9: Continued valuation analysis of listed China education operators.

Conclusion

Bright Scholar Education has shown a strong financial turnaround, driven by student growth and tuition fee increases. While the company's growth prospects remain positive, the current valuation is considered fair, leading to a NEUTRAL rating. The target price was adjusted to align with sector averages, reflecting the company's performance and market conditions.