HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

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<li>
<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> has turned more attractive after a valuation retreat and the return of reported and adjusted net profit to a positive trend in its 1H24 result.</li>
<li>Increase in the proportion of undergraduate studies, a better subject specialisation mix, higher accommodation revenue, and a rise in international education will drive unit student revenue.</li>
<li>More capacity upgrades will allow for a steady increase in student enrollment. Management expects adjusted EBITDA margin to stay stable in the next few years.</li>
</ul>



China Education Group (839 HK) has turned more attractive after a valuation retreat and the return of reported and adjusted net profit to a positive trend in its 1H24 result.
Increase in the proportion of undergraduate studies, a better subject specialisation mix, higher accommodation revenue, and a rise in international education will drive unit student revenue.
More capacity upgrades will allow for a steady increase in student enrollment. Management expects adjusted EBITDA margin to stay stable in the next few years.


China Education Group (839 HK): On Balance, Worth a Bet Now

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<li>
<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>'s 27.8% growth in net profit affirmed its solid fundamentals and minimal exposure to regulatory risks. We also welcome its resumption of dividends.</li>
<li>Management expects profitability will be driven by the 48% new student enrollment growth, potential for tuition increase and global education segment recovery. Consensus forecasts are currently too conservative.</li>
<li>Weaker 2H FY22 profit is due to higher depreciation and finance costs but will be absorbed with higher enrollment. Capex will be light and we also like its deleveraging move. </li>
</ul>



China Education Group (839 HK)'s 27.8% growth in net profit affirmed its solid fundamentals and minimal exposure to regulatory risks. We also welcome its resumption of dividends.
Management expects profitability will be driven by the 48% new student enrollment growth, potential for tuition increase and global education segment recovery. Consensus forecasts are currently too conservative.
Weaker 2H FY22 profit is due to higher depreciation and finance costs but will be absorbed with higher enrollment. Capex will be light and we also like its deleveraging move. 


China Education Group (839 HK): Shining Through

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<li>Positive response of <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>'s placement indicated a good return of investor appetite to the sector. Its premium multiples stay well justified even after recent rally. </li>
<li>The HK$1.6bn proceeds will reduce gearing to 29.2% (including contract liabilities) from 41.7% with minimal dilution. Narrowing in valuation gap against asking price of targets means more M&amp;A potential. </li>
<li>More funding for expansion of existing campuses, increase in accommodation and the set up of COVID-19 related curriculum will allow CEG to realise higher revenue per student.</li>
</ul>


Positive response of China Education Group (839 HK)'s placement indicated a good return of investor appetite to the sector. Its premium multiples stay well justified even after recent rally. 
The HK$1.6bn proceeds will reduce gearing to 29.2% (including contract liabilities) from 41.7% with minimal dilution. Narrowing in valuation gap against asking price of targets means more M&amp;A potential. 
More funding for expansion of existing campuses, increase in accommodation and the set up of COVID-19 related curriculum will allow CEG to realise higher revenue per student.


China Education Group (839 HK): Solidifying Investment Thesis After Placement

<ul>
<li>
<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> has retreated 23% from recent high with no regulatory and company news. Given its secured earnings growth outlook, we see an opportunity. </li>
<li>We believe drivers are higher enrollment and tuition, further capacity growth, good progress in overseas education and light capex. There are positive developments in these aspects recently. </li>
<li>CEG may return unused share buyback funds to shareholders via dividend, suggesting a potential resumption of payout. At just 5.7x PER for FY23F, its growth prospect is undervalued.</li>
</ul>



China Education Group (839 HK) has retreated 23% from recent high with no regulatory and company news. Given its secured earnings growth outlook, we see an opportunity. 
We believe drivers are higher enrollment and tuition, further capacity growth, good progress in overseas education and light capex. There are positive developments in these aspects recently. 
CEG may return unused share buyback funds to shareholders via dividend, suggesting a potential resumption of payout. At just 5.7x PER for FY23F, its growth prospect is undervalued.


China Education Group (839 HK): Sustaining Growth Trajectory

<ul>
<li>
<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> demonstrates resilience amid market concerns on policy uncertainties by posting a 40.5% growth in 1H22 reported net profit and 20.1% growth in adjusted net profit. </li>
<li>Higher education segment saw 44% profit growth and strengths will sustain into 2H22. Weaker secondary vocational and global education segments will witness a sharp recovery, based on latest application statistics.</li>
<li>CEG has secured increase in tuition and quota in the coming school year, and this will boost FY23 outlook. It opts for an Rmb500m buyback, instead of paying interim dividend.</li>
</ul>



China Education Group (839 HK) demonstrates resilience amid market concerns on policy uncertainties by posting a 40.5% growth in 1H22 reported net profit and 20.1% growth in adjusted net profit. 
Higher education segment saw 44% profit growth and strengths will sustain into 2H22. Weaker secondary vocational and global education segments will witness a sharp recovery, based on latest application statistics.
CEG has secured increase in tuition and quota in the coming school year, and this will boost FY23 outlook. It opts for an Rmb500m buyback, instead of paying interim dividend.


China Education Group (839 HK): Impressive 1H22 Result, Positive Takeaways from Call

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China Education Group (839 HK)