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China Tutoring Education Sector - May quarter margin softness from investment in

2019/7/11 21:48:41 来源:招商证券 作者: 人评论

作者:Tommy WONG,Crystal LI时光:2019年07月09日重要性:普通报告行业评级:公司评级:相干股票代码:浏览权限: 该文章钻石卡、金卡、银卡客户可浏览全文摘要:Report title:China Tutoring Education Sector - May quarter margin softness from investment into th…

作者: Tommy WONG,Crystal LI
时光: 2019年07月09日
重要性: 普通报告
行业评级:
公司评级:
相干股票代码:
浏览权限:   该文章钻石卡、金卡、银卡客户可浏览全文
摘要: Report title:China Tutoring Education Sector - May quarter margin softness from investment into the future
Analyst:Tommy WONG,Crystal LI
Report type:Industry
Date:20190709
[Summary]

■ We lowered our May quarter earnings for TAL (TAL US, BUY) and New Oriental (EDU US, BUY) from lower operating margin, due to elevated expenses for future growth, largely from online segment
■ Recent investor meetings indicate some polarization of views
■ Structural growth intact. Maintain BUY, TP unchanged
May quarter softer margins, positive outlook unchanged
After recent checks, we lowered our May quarter operating margin/earnings forecast for TAL and EDU due to higher expenses. For TAL, we cut 1Q20E non-GAAP EPADS from lowering operating margin from 13.8% to 11.8% (450 bps lower compared to 1Q19). However our TAL FY20E full year earnings forecast remains unchanged, as we maintain our view that the company can “make-back” its operating margin in later quarters. For EDU we lowered FY19E non-GAAP EPADS from USD2.85, to USD2.64, though we kept FY20E forecast unchanged. May quarter is a seasonally softer quarter for both TAL and EDU. Positive outlook for TAL and EDU remains unchanged due to their industry consolidation leadership and growth opportunities.
Investor polarization on TAL and EDU: policy and valuation
After strong year to date rally, one camp of investors remain bullish on TAL and EDU outlook, the other camp are concerned about policy and valuation. Relating to policy, we tallied a number of recent municipal policies such as 1) After school extracurricular activities, 2) Public tutoring “free” platforms, 3) Prohibition of entrance exams for secondary school enrollment. These policies discussed are not new and have been implemented for some time. We highlight our two industry leaders have very low market share despite their revenue size in this highly fragmented market. We believe even if the industry faces lower growth, the two companies can continue to maintain fast growth through industry consolidation. Our view on government policy impacts is neutral with high degree of compliance achieved by TAL and EDU through 2018. We believe their valuations are justified by taking a longer term view of the structural growth story, and rapid earnings growth, with TAL at 1.3x and EDU at 0.8x PEG (TAL premium from execution and margin performance).
Maintain BUY with TP unchanged for TAL and EDU
We maintain BUY rating for TAL: growth from its exceptional brand driven growth more than offsetting near-term drag from online expansion. Our next 12-mo target price is unchanged at US$46.1 (20% upside), based on 45x P/E on next 12-mo EPADS, implying 52x/35x FY20E/21E P/E. For EDU: continued offline growth with FY20E margin recovery from rationalized expense control with focus on utilization and student retention. Our next 12-mo target price is unchanged at US$117.3 (22% upside), based on 32x P/E and next 12-mo EPADS, implying 33x/25x FY20E/21E P/E.

[投资评级界说]

公司短期评级

以报告日起6个月内,公司股价相对同期市场基准(沪深300指数)的表示为尺度:激烈引荐:公司股价涨幅超基准指数20%以上
谨慎引荐:公司股价涨幅超基准指数5-20%之间
中性:公司股价更改幅度相对基准指数介于±5%之间
回避:公司股价表示弱于基准指数5%以上

公司长期评级
A:公司长期竞争力高于行业均匀程度
B:公司长期竞争力与行业均匀程度分歧
C:公司长期竞争力低于行业均匀程度

[重要声明]
报告中的内容和看法仅供参考,并不组成对所述证券买卖的出价,在任何情形下,本报告中的信息或所表述的看法并不组成对任何人的投资建议。

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