20160224-大华继显-枫叶教育-01317.HK-A_Clear_Leader_In_China_s_International_School_Market_15页_690kb

Summary of Money Talk on China Maple Leaf Education (1317 HK)

Core Content

China Maple Leaf Education (1317 HK) is a leading operator of international schools in China, offering bilingual, dual curriculum, and dual diploma programs. The company's asset-light expansion strategy enables it to expand quickly and efficiently, reducing marketing and administrative costs. With a strong track record of student university admissions, particularly to top global institutions, Maple Leaf is well-positioned in the competitive international education market.

Main Points

• Educational Offerings: Maple Leaf provides bilingual education across K-12 levels, with a focus on high school students who can obtain both a Chinese and a British Columbia (BC) high school diploma. This model prepares students for overseas studies while maintaining their Chinese academic standards.

• School Network: As of 30 September 2015, Maple Leaf operated 46 schools, including 8 high schools, 12 middle schools, 11 elementary schools, 13 preschools, and 2 foreign schools. It had an enrollment of 17,864 students, with a retention rate of 80% from elementary to middle and high school levels.

• Tuition Fees: Maple Leaf's tuition fees are significantly lower than the industry average, making it more accessible to middle-class families. It targets tier-2 and tier-3 cities, which helps reduce marketing costs and ensures a steady student flow.

• Growth Prospects: The company plans to open 18 new schools in the next two years, with most developed using the asset-light model. This strategy allows for lower initial investment and faster capacity expansion.

• Financial Performance: Maple Leaf has shown strong revenue and net profit growth over the past few years. Its adjusted net profit increased from Rmb127m in 2015 to Rmb216m in 2016F and is expected to reach Rmb261m in 2017F. The company has a healthy balance sheet with Rmb1.02b in cash and zero bank borrowing.

• Valuation: The stock is currently trading at a 23.3x 2016F PE, which is a 10% discount to Nord Anglia (NORD US) due to concentration risk. The target price is HK$4.59, with an upside of 4.1% from the current share price of HK$4.41.

• Investment Highlights: Maple Leaf's niche is its dual curriculum and diploma programs, which have a good track record of university admissions. It also has a wide network of partnerships with over 50 global universities, enhancing its credibility and student prospects.

Key Financials

Risks

• Failure of students to gain admission to top 100 universities could damage the brand.
• Concentration of income sources in China may pose a risk if the market changes.
• Failure to achieve planned capacity expansion could limit growth.
• A drop in utilisation rate might affect profitability.
• Renewal of the BC global education certificate is crucial for maintaining its international standards.

Peer Comparison

Company Background

• Founded in 1995 and listed on the Hong Kong Stock Exchange in November 2014.
• First international school opened in Dalian in 1996.
• Has a 20-year operating history and a strong brand reputation.
• Management includes experienced individuals with a proven track record in education and administration.

Strategic Advantages

• Asset-light model: Reduces initial investment and allows for faster expansion.
• Bilingual education: Enhances students' competitiveness in global universities.
• Strong brand reputation: High admission rates to top universities.
• Partnerships: Over 50 global university partnerships provide an advantage in student admissions.
• Healthy balance sheet: Strong cash reserves and low debt-to-equity ratio.

Conclusion

Maple Leaf is a clear leader in China's international school market with a strong brand, a diversified school network, and a competitive pricing strategy. Its asset-light model and focus on tier-2 and tier-3 cities allow for efficient expansion and cost control. Despite the risks, the company's financial performance and strategic positioning suggest a HOLD rating with a target price of HK$4.59.