新高教集团(2001.HK)：Strong M&A-driven growth，Maintain BUY，PT to HKD7.31

机构：中信建投

评级：买入

目标价：7.31港元

China New Higher Education Group (CNHEG) announced to acquire three schools in Guangxi Province, at a total consideration of RMB146.7mn, representing FY17 15.7x PER.  

The acquisition is solid proof that the latest regulations would have limited adverse impact on M&As of listed private higher education companies. We reiterate our positive view on solid growth of the industry through organic and external expansion.

We have trimmed our FY18/19E EPS estimates by -0.3/2.6% respectively and derived our new DCF-based PT of HKD7.31, implying 43.9% upside potential. Maintain BUY. 

New acquisition with a favourable valuation. CNHEG announced to acquire 51% interest of three schools in Guangxi province, including a college, a vocational school and a high school. The total consideration of RMB146.7mn, representing FY17 15.7x PER, is undemanding, considering the future growth prospects of the acquisition target, in our view.  

Room for profit improvement of the target. In SY18/19, the total student enrolment of the three schools is expected to reach c.10,000, compared to 8,434 in SY17/18, of which c.1,600 students are in high school. We see great room for improvement of the acquisition targets post the acquisition, including 1) the college will most likely be upgraded to one that offers undergraduate degrees by  the end of the “13th Five-Year Plan” period; 2) student enrolment is foreseen to grow by c.10-15% YoY; 3) tuition fees are expected to increase by c.5-10% YoY annually going forward albeit they have been hiked from RMB6,000-7,500 in SY17/18 to RMB7,000-8,500 in SY18/19 as tuition fees are still deemed to be relatively low; and 4) margin improvement, as the acquisition targets’ GPM, which are currently c.32%, are significantly lower than CNHEG’s 56%, due to the high student recruitment costs (c.RMB4,000 per student), lack of experienced talents and low brand power.  

Rising gearing, still at healthy level. Although CNHEG’s net gearing had risen to 54.7%, with total net debts amounting to RMB1.0bn, as of end-1H18, we anticipate its net gearing will come down by end-FY18E. CNHEG is expected to continue to seek co-operations with third parties, like industry funds, in their future M&A executions in order to lower initial investment outlays. Meanwhile, we believe its net gearing will also be driven lower by further consolidation of its schools and collection of tuition fees in 2H18. 

Limited impacts from the 2nd Draft Amendment. The acquisition is solid proof that impact from the latest regulations on the external expansion of listed private higher education companies would be limited, in particularly for CNHEG on the back of the continuous support from the provincial government throughout the acquisition of the schools. CNEHG will choose for-profit after the transition period. For Guangxi Schools, CNHEG may need to pay c.RMB12.5mn (c.RMB50,000/mu on average) for the entire c.250mu of land that currently belong to the allocated land.  

Maintain BUY and raise PT to HKD7.31. We have revised our FY18E/19E revenue and earnings estimates by 0.0/9.2% and -0.3/2.6% respectively to primarily factor in the new acquisition (Assume to be consolidated in Jan-19). Our DCF generated a new PT of HKD7.31 (Previous: HKD7.1), implying 43.9% potential upside. CNHEG currently trades at 20.6/14.6x FY18E/19E PER respectively, which is attractive, given the high visibility of strong revenue and earnings growth, in our view.