|作者：||Tommy WONG,Crystal LI|
|摘要：||Report title:China New Higher (2001 HK) - Raising stake in Guangxi School
Analyst:Tommy WONG,Crystal LI
■ New Higher announced an acquisition of 39% interest of its Guangxi School, lifting total ownership to 90%
■ Bright outlook for Guangxi School with further expansion in sight
■ Stake hike is a low risk strategy to increase returns; Valuation still very attractive, revised up TP and reiterate BUY
Raising stake in Guangxi School
New Higher initially acquired 51% of Guangxi School in Sept 2018. The school was financially consolidated in Jan 2019. The latest deal is an RMB152mn acquisition of 39% interest of the Guangxi School, lifting New Higher’s total ownership to 90%. This acquisition follows previous stake increase of its Henan School back in May. This acquisition’s valuation is 13.7x 2019 P/E vs. 14.3x 2017 P/E for its initial acquisition. We estimate the Guangxi stake increase to contribute FY20/21E bottom line by 1%/3%, respectively.
Good performance with expansion in sight
From 2017 to 2019, Guangxi School’s revenue has grown 54.7% with total enrollment growth of 21.8%. Guangxi School’s unaudited net profit was RMB18.4mn in 2017 (Dec), and increased to RMB20.2mn in 2018 (+10% yoy), and to RMB28.4mn in 2019 (+41% yoy). Management is upbeat on Guangxi School’s long term outlook: 1) Guangxi’s robust above-national GDP growth; 2) Guangxi Gaokao applicants have been growing by c.12% in past few years with total surpassing 500k this year; 3) Guangxi has low gross enrollment rate at 39%, 9ppt below national average; 4) geographically connected to Southeast Asia and ready to enrol foreign students. Management has preliminary plans to further expand the school with acquisition of available adjacent land.
Another reason for re-rating, revise up TP to HKD7.1
We revised FY20/21E core earnings slightly by -3.2%/1.0%, mainly driven by: 1) reduced minority income from the stake increase of Guangxi School; 2) delay in Gansu School’s financial consolidation to 2021, and 3) minor adjustment in margins. The latest acquisition is another catalyst of our New Higher’s re-rating story, we raised next-12-mo target P/E to 15x from 14x previously, TP to HKD7.1 from HKD6.3, reiterate BUY. Our TP implies 18x/14x FY20/21E P/E.