Results in line, with a promising enrolment outlook
? China Education Group (CEG) reported 1H FY8/22 revenue of Rmb2,351m, up 28.9%
yoy, and adjusted net profit of Rmb909m, up 20.1% yoy, in line with our expectations.
? We expect FY8/22F full-year revenue growth of 28% yoy and adjusted net profit growth
of 20% yoy, with about 14–18% organic yoy growth in the adjusted net profit.
? CEG has received preliminary approval for its 22/23 school year new student intake
quotas and tuition increases for several of its programs, with 7–100% quota increases
and 7–20% tuition increases.
? Reiterate Add with new DCF-based TP of HK$23.2.
Results in line, with strong growth in higher vocational education
1H FY8/22 revenue growth in the higher vocational education segment was 44.2% yoy,
but this was offset by a 7.8% and 35.7% yoy revenue drop in the secondary vocational
education and global education segments, because the pandemic control measures
affected the student recruitment process for these two segments. The student recruitment
for these two segments is market-oriented recruitment instead of national unified
enrolment, which is used for higher vocational education. Excluding the consolidation of
Jincheng College (in Sep 2021), the organic revenue growth in 1H FY8/22 was 16% yoy,
with 27% yoy organic revenue growth in the higher vocational education segment. Its gross
margin was flat yoy, and its operating margin expanded by 4.5% pts yoy to 58.0%, because
of a decline in the selling expenses to total revenue ratio, reflecting fewer student
recruitment campaigns amid the pandemic. CEG announced a share repurchase plan
instead of an interim dividend. The total amount of the share repurchases will be no more
than Rmb500m. CEG will resume its dividend payout when market conditions improve. We
expect FY8/22F full-year revenue growth of 28%% yoy and adjusted net profit growth of
20% yoy, with 14–18% organic yoy growth in adjusted net profit.
Promising enrolment outlook and overseas market releases
CEG has received preliminary approval for the 22/23 school year new student intake
quotas and tuition increases for several of its programs, with 7–100% quota increases and
7–20% tuition increases. Owing to the pandemic, the global education segment depends
mainly on on-shore students in 1H FY8/22, since the overseas student number has fallen
considerably. But the Australian government reopened its border for foreign students in
Feb 2022, and the global education segment recovered strongly in Mar. In Mar 2022, CEG
saw new student applications increase by 63% yoy and 75% vs the same period in 2019
for its Australia school, which is expected to drive flat yoy and 90% hoh segment profit
growth in 2H FY8/22F. CEG paused its M&A plan, given the weaker stock market. The
recent primary market valuation of private universities still stands at 10–20x P/E.
Government policy still in favour of higher vocational education
Recently, the new Vocational Education Law was announced by the National Congress,
promoting vocational education with measures including welcoming private capital,
integrating industry and education, and providing more autonomy to schools. CEG will
choose the for-profit business model for all of its schools, and the process is under way in
some provinces. Although the MoE is encouraging an acceleration of the process, different
provinces are at different stages, based on their actual situation. In Shanghai, six private
higher-education schools have started the process. One Shanghai higher-education school
owned by a HK-listed company has already been approved by the education department
to convert to a for-profit school and has seen a continuous increase in student enrolment
and tuition. We expect the for-profit conversions to be completed by as early as end-2022.