1H20 revenue and adj. NP fell 17% and 48% YoY, respectively, in line with profit alert’s guidance range. The Company expects YTD no. of new students growth to recover from -20% YoY in 1H to flat at end of Sep, which is behind our expectation. That said, management is confident to achieve 10-15% YoY revenue growth and 15-20% YoY adj. NP growth in long term. Our TP was adjusted from HK$21.10 to HK$19.60, still at 31.7x FY21E P/E. Maintain Buy.
- 1H results in line. Revenue dropped 17%, led by 4% decline of avg. students enrolled and 14% ASP drop. The drop of ASP was because (1) the 20% decline of avg. students enrolled in short-term courses (higher ASP) was larger than that of long-term courses (down 2%) and (2) the recognition of tuition fees of certain graduates was extended by 2-3 months given that these graduates need to complete practical training classes, which were suspended amid COVID-19. GPM narrowed 3.3ppt due to revenue decline.
- No. of new students is recovering but slower than expectation. From mid-July to now, number of new students of different brands jumped 50-100% as Zhongkao ended. YTD no. of new students dropped 10% (vs -20% in 1H). The Company expects YTD no. of new students growth could be flat at end of Sep.
- Ramp-up of new beauty school better than expected. The beauty training school opened in Chengdu has ~350 students now despite COVID-19 disruption to admission in 1H. As new student enrollment in Jul-Sep is the strongest in a year, no. of students of the schools could exceed target of 400-500 students in FY20E. The Company plans to open two new beauty training schools in Zhengzhou and Changsha in 2H20E. If the ramp-up of these two schools are strong, the Company could accelerate beauty training expansion.
- Network expansion. The Company increased its schools by 17 to 194 in 1H20. The Company plans to add 20 in 2H20E. The strong expansion in FY20E is because some new school openings in FY19 was delayed. In future, the Company targets to add 20 new schools per year.
- Maintain Buy. We revised down FY20/21/22E adj. NP by 18%/7%/5% mainly because the recovery is slower than our expectation. Our TP was changed from HK$21.10 to HK$19.60, still based on 31.7x FY21E adj. P/E which is at 15% discount to education sub-sector leaders’ average of 37.3x. We forecast the Company to post 34% adj. EPS CAGR in FY20-22E. Catalysts: student enrollment beats, M&A. Risk: lower-than-expected student enrollment.
