HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<p><a href="https://www.smartkarma.com/entities/china-yuhua-education" target="_blank" data-smartkarma-citation="entities:23627:1" rel="noopener">China Yuhua Education (6169 HK)</a> posted a 39.7% YoY growth in adjusted net profit as its higher education segment turned into a key earnings engine. Decent 4pp margin expansion was achieved from higher enrollment, hike in tuition and excellent cost control. We also saw an impressive 127.8% YoY increase in operating cash flow.</p><p>Management points to further margin expansion for most of its universities, and this will drive contribution to net profit (91% of 1H21 profit from higher education). While M&amp;A activities have slowed, organic growth is expected to stay at least at 25% for the near term. Given its sufficient capacity, there is no need for fund raising from the market. In our view, its 16.3x PER and 4.8x P/B (FY21F ROE: 32%) are highly justified, and Yuhua Education remains one of our top picks as stated in <a href="https://www.smartkarma.com/insights/china-private-education-this-is-where-the-future-lies" target="_blank" data-smartkarma-citation="insights:48727" rel="noopener">China Private Education: This Is Where the Future Lies</a>. </p>

China Yuhua Education (6169 HK) posted a 39.7% YoY growth in adjusted net profit as its higher education segment turned into a key earnings engine. Decent 4pp margin expansion was achieved from higher enrollment, hike in tuition and excellent cost control. We also saw an impressive 127.8% YoY increase in operating cash flow.Management points to further margin expansion for most of its universities, and this will drive contribution to net profit (91% of 1H21 profit from higher education). While M&amp;A activities have slowed, organic growth is expected to stay at least at 25% for the near term. Given its sufficient capacity, there is no need for fund raising from the market. In our view, its 16.3x PER and 4.8x P/B (FY21F ROE: 32%) are highly justified, and Yuhua Education remains one of our top picks as stated in China Private Education: This Is Where the Future Lies. 

China Yuhua Education (6169 HK): Decent 1H21, Key Takeaways from Post-Result Call

Thematic (Sector/Industry)

<p>The China Private Education Sector presents an exciting growth story, riding on the increase in spending on education, rise in demand for quality education, support from local governments for private investments and increase in acceptance towards online delivery mode, among others. These positive factors, however, are balanced by the decrease in birth rates and the tight regulatory regime. Despite so, we continue to see good prospects given that earnings growth will remain ahead of the overall market by significant magnitude. Meanwhile, valuations have already returned to more reasonable levels, with investment value started to emerge on some names.</p><p>Companies in the sector have different focuses, including K-12 education, higher education, vocational education, tutoring (online) and tutoring (online and offline), and we have to be very selective. We prefer companies that focus on higher education which face lower regulatory risks, have a clear defined expansion strategy and specialise in a niche market segment. Out of the ten companies covered in this Smartkarma Original, we put forward <a href="https://www.smartkarma.com/entities/china-education-group-holdin" target="_blank" data-smartkarma-citation="entities:18218:1" rel="noopener">China Education Group (839 HK)</a>, <a href="https://www.smartkarma.com/entities/tianli-education-internation" target="_blank" data-smartkarma-citation="entities:27210:1" rel="noopener">Tianli Education (1773 HK)</a> and <a href="https://www.smartkarma.com/entities/china-yuhua-education" target="_blank" data-smartkarma-citation="entities:23627:1" rel="noopener">China Yuhua Education (6169 HK)</a> as our top picks.</p><h2>What's Original?</h2><p>This Smartkarma Original takes an in-depth analysis on 10 companies in the Private Education Sector in China, covering stocks listed in the HKEx, NYSE, Shenzhen Stock Exchange as well as dual listings. In the A-share space, we cover <a href="https://www.smartkarma.com/entities/wuhu-yaxia-automobile-corp" target="_blank" data-smartkarma-citation="entities:9979:1" rel="noopener">Offcn Education Technology (002607 CH)</a>, which is sizeable (market cap of almost HK$210bn) and with unique exposure to the civil servants recruitment examination training.</p><p>Besides addressing the key evolving trends of the industry and the all-important regulatory issues, we also touched on the private funding aspects for some prominent unlisted companies and the IPO trends of the industry. Where appropriate, we share some of our on-ground experiences with the aim to provide a closer feel on the industry and companies. We hope this Smartkarma Original will be a comprehensive and updated reference for China's Private Education Sector.</p>

The China Private Education Sector presents an exciting growth story, riding on the increase in spending on education, rise in demand for quality education, support from local governments for private investments and increase in acceptance towards online delivery mode, among others. These positive factors, however, are balanced by the decrease in birth rates and the tight regulatory regime. Despite so, we continue to see good prospects given that earnings growth will remain ahead of the overall market by significant magnitude. Meanwhile, valuations have already returned to more reasonable levels, with investment value started to emerge on some names.Companies in the sector have different focuses, including K-12 education, higher education, vocational education, tutoring (online) and tutoring (online and offline), and we have to be very selective. We prefer companies that focus on higher education which face lower regulatory risks, have a clear defined expansion strategy and specialise in a niche market segment. Out of the ten companies covered in this Smartkarma Original, we put forward China Education Group (839 HK), Tianli Education (1773 HK) and China Yuhua Education (6169 HK) as our top picks.What's Original?This Smartkarma Original takes an in-depth analysis on 10 companies in the Private Education Sector in China, covering stocks listed in the HKEx, NYSE, Shenzhen Stock Exchange as well as dual listings. In the A-share space, we cover Offcn Education Technology (002607 CH), which is sizeable (market cap of almost HK$210bn) and with unique exposure to the civil servants recruitment examination training.Besides addressing the key evolving trends of the industry and the all-important regulatory issues, we also touched on the private funding aspects for some prominent unlisted companies and the IPO trends of the industry. Where appropriate, we share some of our on-ground experiences with the aim to provide a closer feel on the industry and companies. We hope this Smartkarma Original will be a comprehensive and updated reference for China's Private Education Sector.

China Private Education: This Is Where the Future Lies

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

China Education Group / Equity Capital Markets

<div><p><a href="https://www.smartkarma.com/entities/china-education-group-holdin" target="_blank" data-smartkarma-citation="entities:18218:1" rel="noopener">China Education Group (839 HK)</a> is looking to raise up to US$268m in its top-up placement. This will be second placement for the stock in less than six months.  </p></div><div><p>In this note, we will look at the use of proceeds, deal dynamics, and run the deal through framework.</p></div>

China Education Group (839 HK) is looking to raise up to US$268m in its top-up placement. This will be second placement for the stock in less than six months.  In this note, we will look at the use of proceeds, deal dynamics, and run the deal through framework.

China Education Group Placement - Back for More, past Deal Didn't Do Well

APAC IPOs & Placements

Zhen Zhou, Toh

China East Education  / Equity Capital Markets

<p>Wu Wei, Wu Junbao, and Xiao Guoqing are looking to sell 2.2% stake in <a href="https://www.smartkarma.com/entities/china-east-education-holdings" target="_blank" data-smartkarma-citation="entities:27843:1" rel="noopener">China East Education (667 HK)</a> with an additional upsize option of 12m shares. Post selldown, assuming upsize option is excercised, they will still have about 76.7% stake in the company.</p><p>We have previously covered the IPO in:</p><ul>
<li><a href="https://www.smartkarma.com/insights/china-east-education-pre-ipo-the-company-known-for-its-culinary-school" target="_blank" data-smartkarma-citation="insights:26806" rel="noopener">China East Education (中国东方教育) Pre-IPO - The Company Known for Its Culinary School</a></li>
<li><a href="https://www.smartkarma.com/insights/china-east-education-ipo-preliminary-valuation" target="_blank" data-smartkarma-citation="insights:29981" rel="noopener">China East Education (中国东方教育) IPO - Preliminary Valuation</a></li>
<li>
<a href="https://www.smartkarma.com/insights/china-east-education-ipo-bold-expansion-plans" target="_blank" data-smartkarma-citation="insights:30064" rel="noopener">China East Education (中国东方教育) IPO - Bold Expansion Plans</a> </li>
<li>
<a href="https://www.smartkarma.com/insights/china-east-education-trading-update" target="_blank" data-smartkarma-citation="insights:30367" rel="noopener">China East Education (中国东方教育) Trading Update</a> </li>
</ul>

Wu Wei, Wu Junbao, and Xiao Guoqing are looking to sell 2.2% stake in China East Education (667 HK) with an additional upsize option of 12m shares. Post selldown, assuming upsize option is excercised, they will still have about 76.7% stake in the company.We have previously covered the IPO in:
China East Education (中国东方教育) Pre-IPO - The Company Known for Its Culinary School
China East Education (中国东方教育) IPO - Preliminary Valuation

China East Education (中国东方教育) IPO - Bold Expansion Plans 

China East Education (中国东方教育) Trading Update 


China East Education (中国东方教育) Placement - Family Selldown

Equity Research in HK and Mainland China

Li Tang

<ul>
<li>The fifth plenary session of the 19th Central Committee of the Communist Party of China (CPC) will be held from October 26 to 29 in Beijing, according to a decision made at the Politburo meeting chaired by President Xi Jinping meeting on Monday.</li>
<li>The Fifth Plenum, to be held next week (26-29 October), will most likely focus on Three major subjects: i) the steering of China’s economic growth and restructuring, ii) the development of China’s 14th Five Year Plan, and iii) the prepared political reshuffling to occur ahead of 2022, when the Standing Committee, China’s highest legislative body, is expected to step down.</li>
<li>As one of the important task, the meeting will focus on finalising the guidelines for the 14th Five Year Plan. The plan will be approved in March 2021 at the conclusion of the annual National People’s Congress meeting.</li>
</ul>


The fifth plenary session of the 19th Central Committee of the Communist Party of China (CPC) will be held from October 26 to 29 in Beijing, according to a decision made at the Politburo meeting chaired by President Xi Jinping meeting on Monday.
The Fifth Plenum, to be held next week (26-29 October), will most likely focus on Three major subjects: i) the steering of China’s economic growth and restructuring, ii) the development of China’s 14th Five Year Plan, and iii) the prepared political reshuffling to occur ahead of 2022, when the Standing Committee, China’s highest legislative body, is expected to step down.
As one of the important task, the meeting will focus on finalising the guidelines for the 14th Five Year Plan. The plan will be approved in March 2021 at the conclusion of the annual National People’s Congress meeting.


Fifth Plenum Should Focus on Economic Targets, Five Year Plan, Political Reshuffling

China

China East Education Holdings Limited provides vocational training educational services. The Company offers culinary education, internet technology education, automotive education, and other services. China East Education Holdings provides services in China.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

China East Education (667 HK)

China Yuhua Education (6169 HK): Decent 1H21, Key Takeaways from Post-Result Call

Yuhua Education should see good organic earnings prospects as it benefits from higher student enrollment, hike in tuition and cost control. There...

Osbert Tang, CFA

China Private Education: This Is Where the Future Lies

Profit growth at China Private Education Sector will speed ahead and outperform overall market significantly. With valuations retreated to more...

Osbert Tang, CFA

China Education Group Placement - Back for More, past Deal Didn't Do Well

China Education Group (839 HK) is looking to raise up to US$268m in its top-up placement. This will be second placement for the stock in less than...

Sumeet Singh

China East Education (中国东方教育) Placement - Family Selldown

Wu Wei, Wu Junbao, and Xiao Guoqing are looking to sell 2.2% stake in China East Education (667 HK) with an additional upsize option of 12m shares.

Zhen Zhou, Toh

Fifth Plenum Should Focus on Economic Targets, Five Year Plan, Political Reshuffling

The fifth plenary session of the 19th Central Committee of the Communist Party of China (CPC) will be held from October 26 to 29 in Beijing,...

Li Tang

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)