20181008-兴证国际证券-宇华教育-06169.HK-Enrollment_beyond_expectation_on_new_academic_year,Outstanding_teaching_quality_secures_performance_6页_639kb

Equity Research Report Summary: China Yuhua Education (06169.HK)

Core Content

This equity research report provides an in-depth analysis of China Yuhua Education (06169.HK), highlighting its strong performance in the education sector, particularly in K-12 and higher education. The report maintains a "Buy" investment rating with a target price of HKD 6.6, indicating a 79% upside potential from the closing price of HKD 3.7 on October 5, 2018.

Key Financials (2017E–2020E)

Investment Highlights

• Enrollment Growth: The company's overall enrollment exceeded expectations during the 2018/19 academic year, with both universities performing exceptionally well.
• Tuition Fee Increases: Tuition fees for both Zhengzhou and Hunan universities were increased by 10%–30%, yet enrollment remained robust.
• K-12 Performance: K-12 enrollment increased steadily, and tuition fees grew at a 5% annual average rate.
• Gaokao Success: In 2018, 8 students from Yuhua schools were admitted to Tsinghua University and Peking University. The "985211" rate reached 26.4%, significantly higher than the 4% average in Henan Province. The first-batch-university rate exceeded 40%, compared to 10.7% in Henan Province.
• Profit Forecast Upgrade: The company's profit forecast was upgraded by 67 million RMB and 110 million RMB, leading to net profits of 580 million RMB, 811 million RMB, and 980 million RMB for fiscal years 2018–2020.
• Valuation: The target price of HKD 6.6 corresponds to 32x, 23x, and 19x P/E ratios for 2018–2020, respectively. The PEG ratio is 1x for the same period.
• Rating Justification: The company is rated "Buy" due to its strong enrollment growth, improved financial performance, and solid teaching quality.

Key Performance Indicators

Zhengzhou University

• Enrollment Rate: Reached 96%, surpassing the previous average of 92%–94%.
• Freshmen Enrollment: Exceeded 10,000.
• Total Students: Surpassed 30,000.
• Employment Rate: 95% for 2018 graduates.
• Gaokao Rate: 14.7%.
• Ranking: Ranked 1st in Henan Province and 7th nationally in the China Alumni Association's private university list.

Hunan University

• Tuition Fee Increase: Freshmen fees rose by 5,000 yuan to 20,000–22,700 yuan per year, and junior college fees increased by 2,000 yuan to 11,200–13,400 yuan per year.
• Enrollment Rate: Achieved a record 96%.
• Total Students: Surpassed 30,000.

Risk Factors

• National Education Policy Changes: Potential shifts in government policies may affect the company's operations.
• Expansion Risks: The company's acquisition and self-construction processes may not meet expectations.
• Teaching Quality Concerns: Discontent among students and parents could impact performance.
• VIE Structure Policy Risks: Regulatory changes related to Variable Interest Entity (VIE) structures may pose challenges.

Financial Ratios

Investment Rating Definitions

• Industry Investment Rating:

  • Overweight: Industry outperforms the market.
  • Neutral: Industry performs in line with the market.
  • Underweight: Industry underperforms the market.

• Company Investment Rating:

  • Buy: Stock price outperforms the market by more than 15%.
  • Outperform: Stock price outperforms the market by 5%–15%.
  • Neutral: Stock price outperforms or underperforms the market by less than 5%.
  • Underperform: Stock price underperforms the market by more than 5%.

Information Disclosure

The report is prepared by Industrial Securities Co., Ltd., which adheres to disclosure obligations. Readers can access information on insider trading prevention at www.xyzq.com.cn.

Disclaimer

• The report is based on public information and not guaranteed for accuracy or completeness.
• It is not an invitation to buy or sell securities.
• The views in the report may change and are not guaranteed.
• The report is not intended for unauthorized receivers and should be used with caution.
• The report is subject to local regulations in different countries and regions.
• The Company may have conflicts of interest and does not recommend relying solely on this report for investment decisions.
• The report's copyrights are reserved, and unauthorized use is prohibited.

Conclusion

China Yuhua Education is showing strong growth in both K-12 and higher education sectors, with notable improvements in financial performance and student outcomes. The "Buy" rating and target price of HKD 6.6 reflect the company's potential for further growth and improved valuation metrics. However, potential risks such as policy changes and competition should be considered before making investment decisions.