China Yuhua Education Corp


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*At the time of publication

Profile

Based in Henan Province and founded in 2001, Yuhua is now the largest private education provider of kindergartens and universities, in terms of student numbers. It now has 1 university and 25 K12 schools under the Yuhua brand in 9 cities in the Henan province and 2 universities acquired in Hunan and Shandong provinces. It has also acquired a university in Thailand.

Previous Close Price

Key Statistics

Aug RMB m20182019f2020f
Revenue1,1951,5831,767
Net Profit609721832
Profit Gth (%)49.118.315.4
PE (X)18.114.312.7
Div Yield (%)3.23.84.1
P/BV (X)2.62.32.3
Source: DBS Group Research (At the time of publication)

Recent Developments

Our Views

Proven track record on acquisitions. The market has previously concerned about Yuhua’s acquisition capability, espeically after its capital-market financing and overseas expansion. The company has proven in its recent result announcement that its acquisitions are sustainable and able to create value to shareholders. The gross margin for university segment improved by 6.3ppt to 61.6% in FY19 despite of consolidation of new schools. Student enrolment growth and tuition hike are also on track in the new schoolyear. The company managed to achieve a core RoE of 26%, the highest among the sectors.

Where we differ: We have higher revenue and earnings estimates vs consensus for FY20/21F. We expect the strong enrolment growth momentum at its universities and K12 schools in Henan province to sustain into FY19/20 given its strong brand name locally and sufficient capacity. The new acquired schools’s improvement are also well on track.

Catalyst: Future acquisitions. Though Yuhua is not winning on the number of deals, the quality and scale of its target universities are among the best. The company keeps looking for suitable acquisition opportunities both in China and overseas. It’s highly likely that they could make another good deal in the year to come to boost the share price.

Risks

Weaker-than-expected growth in student numbers and tuition fee levels. Regulatory risks of further policy tightening.

Valuation

We revised up our TP to HK$6.2, pegged to 18x 1-year forward P/E, up from 16x. We expect the valuation to further recover and to have a preimum to its peers like Minsheng (1569 hk) given its faster acquisition consolidation and better balance sheet. Maintain BUY on the strong upside potentials.

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