【Company Research】Hope Education (1765 HK) – More optimistic on FY21E student enrollment
- We raised FY21/22E adj. NP by 3%/6% as we lifted student enrollment estimates by 3%/4%. Our TP is lifted to HK$3.17 from HK$2.80, based on 32.4x FY20E P/E, still at 1x PEG. We forecast Hope Education to deliver 32.4% adj. EPS CAGR from FY20-22E, stronger than sector’s average of 19%. Current 0.8x PEG valuation is undemanding compared to China Education (839 HK, NR) (1.4x PEG) and Yuhua (6169 HK, NR) (1.0x PEG). Hope Education remains our sector top pick. Maintain Buy.
- More optimistic on FY21E student enrollment. It is because of the following: (1) The two universities in Guizhou saw degree quota (incl. diploma-to-degree) growth rates at 30-35%. (2) Sichuan increased its diploma-to-degree quota from 12,000 to 32,000 (+167% YoY). We think Hope College could benefit. (3) News reported Sichuan’s number of students applied for independent recruitment exams (单独招生考试) increased by more than 30,000 to >200,000. The Company could benefit because it had 30% of total students coming from vocational colleges in the province in FY19.
- Tianye College’s quota surged in 2020-21 school year. Its quota for independent recruitment exams surged 69% to 7,200. If its quota for Gaokao unified recruitment remains the same as last year (4,752), its total quota in 2020-21 school year (11,952) would exceed its total students in 2019-20 school year (11,521). The college launches an innovative school-enterprise cooperation program (工学结合班) this year. Students can have at least three months of work practice and earn income of ~RMB12,000 per school year. Part of the tuition fees is born by enterprises. Such job income is greater than students’ tuition fees payable. Students also could enjoy employment priority after graduation. We think such program is attractive to students.
- Two independent colleges could be converted in FY22E at earliest. MOE released a notice to accelerate the conversion of independent colleges into universities on 18 May. In principle, independent colleges sponsored by public universities jointly founded by provincial governments and ministries (部省合建高校) should complete conversion in priority. Given that Guizhou University belonged to this kind of public university, College of Science and Technology of Guizhou University may become one of the Company’s four independent colleges to finish conversion. Also, Jinci College already submitted its conversion plan. We estimate the mgmt. fees of these two universities represents 6% of FY22E adj. NP.
- Catalysts. (1) 2020-21 student enrollment beat; (2) M&A; (3) unpeg of independent colleges; and (4) removal of policy overhang.
