机构:中信建投
评级:买入
目标价:16.9港元
We expect to see 3-5 years of boom period for China’s private higher education market, in view of the increasing demand and capacity constraints in public higher education.
China Education Group (“CEG”) is well poised to sustain strong growth over the coming 2-3 years, on rising student enrollments and tuition fees as well as M&As, in our view.
We initiate coverage on CEG with a BUY rating and DCF-based PT of HKD16.9, implying 14.2% upside potential.
Riding on the thriving private higher education industry in China. China’s private higher education industry have thrived in recent years and will continue its boom over the coming 3-5 years, in view of the following favourable drivers: 1) rapidly expanding middle class and solid growth of household income in China; 2) rising resources and capacity constraints in public higher education; and 3) rising demand for technical talents stemming from the growing variety of new economies in China.
A leading brand in China’s private higher education industry. CEG operates three top-ranked and renowned universities and vocational schools in Guangdong and Jiangxi Province. In 2017, CEG’s initial employment rate reached 93.1%, which was significantly higher than the national average of around 78%. In early 2018, CEG announced to acquire China’s largest vocational school and technician college, which would become a new growth driver and cement its leading position in China’s private higher education industry, in our view. Amid the industry boom with rising industry consolidation opportunities, CEG gained competitive advantages over its peers leveraging on its strong brand power, which would not only lead to economies of scale and better profit margins but greater bargaining power in potential acquisitions.
Strong growth, on both organic growth and M&As. We expect CEG’s revenue/net profit to grow at CAGR of 30.1%/25.8% over the coming three years, underpinned by 1) new campus for an existing school; 2) expanding its student base by providing continuing, online education and international programmes; 3) optimising its school fees pricing and 4) M&As.
Valuation premium justified. Our DCF model generated the TP of HKD16.9. CEG currently trades at FY18E/19E PER of 39.3/30.7x. We believe CEG deserves a premium PER considering its leading position in the private higher education industry and strong earnings growth potential.
Key investment risks. This could lie with delays in acquisitions and changes of regulatory environment.