【公司研究】中國東方教育 (667 HK) – 職業技能教育市場的領導者

• Largest vocational training education provider in China. Under five renowned school brands, the Company (“CEE”) provides culinary arts, information technology and internet technology, and auto services education through nationwide school network. CEE was the market leader of the above three segments and captured 2.5% market share of the whole vocational training education industry in terms of revenue generated for the year ended 31 Dec 2017.

  

• Nationwide school network empowered by highly replicable business model. CEE adopts self-operated business model, centralized management, and standardized operations to ensure the quality of its education services. Empowered by its highly replicable business model, CEE has established a nationwide school network spanning 29 of the 31 provinces in China and Hong Kong, allowing it to build its brand reputation and serve potential employers across China.

  

• Strong job placement results. For FY18, 90.5% of its total average students enrolled in long-term programs (>1-year) which ensure high quality and differentiate CEE from other vocational education providers that are examination oriented or focus on short-term training. Backed by cooperation with over 28,000 enterprises and its nationwide career counselling services, CEE achieved an average recommended employment rate of ~93.7% for its long-term programs for FY18.

  

• Favorable policies. The State Council released the Implementation Plan for the Enhancement of Vocational Skills (2019-2021) (《职业技能提升行动方案（2019 - 2021年》in May 2019. The Plan stated to provide RMB100bn subsidies for training more than 50mn people in three years. Also, “Non-formal vocational training institutes” was the only sub-sector under education sector included in the nationwide encouraged foreign investment catalog.

  

• Growth strategies. CEE plans to 1) establish 20/15/16 new schools and 0/2/4 new centers under Cuisine Academy, respectively, in FY19E/20E/21E, 2) establish five regional centers in China’s five major geographical regions; and 3) diversify courses and curriculums. We forecast adjusted net profit to grow at 36% CAGR in FY19-21E, led by 11% CAGR of average student enrolled and 9% CAGR of ASP. Margins are expected to recover because total net losses for new schools opened in FY17/18 would decrease when they ramp up and expansion pace in FY19-21E is not as strong as that in FY17-18.

  

• Initiate at Buy with TP of HK$16.30. Our TP is based on 27.4x FY20E P/E, on par to the average of FY21E P/E of New Oriental Education and TAL Education. For cross-checking, our TP implies 18.3x/13.5x EV/EBITDA in FY19/20E, which is at 6%/5% discount compared to segment leaders’ average of 19.4x/14.2x. This suggests our TP is not aggressive. Catalysts: (1) Inclusion of the stock into the Shenzhen-HK Connect list in Sep 2019; (2) M&A.