The Company announced to acquire 100% equity interest of Inti Education Holdings (Inti Edu) at a consideration of US$140mn. We think the valuation is undemanding and provides synergies for the Company. We lifted FY21E net profit by 5%. Our FY19-21E NP is 4-12% above consensus. Our TP is lifted from HK$1.96 to HK$2.33.
- To acquire Inti Education Holdings. Inti Edu, the largest private higher education service providers in Malaysia (16,557 students), operates one university and five colleges. It is included in the white list of Chinese MOE foreign higher education institutions.
- Undemanding valuation. The consideration of US$140mn is lower than the selling price of US$180mn offered by Laureate to Affinity Equity Partners in Dec 2017. At 8.9x FY19 EV/EBITDA, the valuation is also lower than 9.4x for China Education’s acquisition of KOI made in Sep 2019. At 18.6x FY19 P/E, the valuation is also less than the Company’s current valuation at 23.2x FY19E P/E.
- Synergies and growth outlook. The acquisition can extend the Company’s programs to postgraduate level and raise ASP by sending its Chinese students to Inti Edu. The Company had track record in sending >1,000 students to Northern Bangkok University in 2019 through a collaboration program. International students only account for 10% of Inti Edu’s total students, less than industry average of 25-30%. Therefore, there is potential to increase. The Company plans to raise Inti Edu’s EBITDA margin from 19.9% in FY19 to company’s level of 50-60% in 3-5 years, and grow its adj NP a CAGR of 39%+ in FY20-23E by enrolling more students and controlling costs. Inti Edu’s adj EBITDA margin of 19.9% is much below the Company’s 50-60%, suggesting a large room to improve though the Company’s margin could be diluted in FY21E.
- Regulatory approval required. The acquisition is subject to Malaysia’s MOE approval. Management is confident to get approval because MOE had approved the sale of Inti Edu by Laureate to Affinity Equity Partners before.
- TP upped to HK$2.33, maintain Buy. We assume the acquisition could be completed by end of 2020E, and accelerate net profit growth beginning FY21E. We lifted FY21E net profit by 5% and TP from HK$1.96 to HK$2.33, based on 21.4x FY20E P/E (vs 18x previously) or 0.61x FY20E PEG. We think the higher target P/E is justified by stronger EPS CAGR of 35% (vs 31% previously) in FY19-21E, which is the highest among peers and stronger than peers’ average of 26%. Catalysts: (1) removal of policy overhang; (2) M&A. Risk: surge of teachers’ costs.
