HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

<ul>
<li>The sharp rally of China's higher education stocks on 18 Nov reflects positive sentiment from announcement of "Implementation Plan for the Project of Reaching the Standards for Running Vocational Schools".</li>
<li>For <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>, potential resumption of dividend will be a driver. The 48% increase in 2022/23 registered students and 10pp utilisation growth have secured FY23 outlook.  </li>
<li>CEG's premium valuations are justified by execution capability, asset quality and earnings outlook. FY23 consensus forecasts are just too low and upgrades will be positive catalysts.</li>
</ul>


The sharp rally of China's higher education stocks on 18 Nov reflects positive sentiment from announcement of "Implementation Plan for the Project of Reaching the Standards for Running Vocational Schools".
For China Education Group (839 HK), potential resumption of dividend will be a driver. The 48% increase in 2022/23 registered students and 10pp utilisation growth have secured FY23 outlook.  
CEG's premium valuations are justified by execution capability, asset quality and earnings outlook. FY23 consensus forecasts are just too low and upgrades will be positive catalysts.


China Private Education: A Massive Comeback?

Asia Pac IPO & Placement Research, China biotech, Aequitas Research

Ke Yan, CFA, FRM

Asia Pac IPO & Placement Research, China biotech

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.

Quantitative Analysis

<ul>
<li>We analyze the weekly Hong Kong Connect flows with our data engine for holding position as of November 4th.</li>
<li>The top stocks by inflows and outflows were tabulated for all market, HSCEI, mid cap and s/mid cap groups.</li>
<li>We highlight inflows into Tencent, Meituan, Wuxi Biologics, Li Ning.</li>
</ul>


We analyze the weekly Hong Kong Connect flows with our data engine for holding position as of November 4th.
The top stocks by inflows and outflows were tabulated for all market, HSCEI, mid cap and s/mid cap groups.
We highlight inflows into Tencent, Meituan, Wuxi Biologics, Li Ning.


Hong Kong Connect Flows (Nov 4th): Tencent, Meituan, Wuxi Biologics, Li Ning

Equity Bottom-Up

Hope Education Group Co Ltd / Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/hope-education-group-co-ltd" target="_blank" data-smartkarma-citation="entities:27321:1" rel="noopener">Hope Education Group Co Ltd (1765 HK)</a> achieved good student enrollment quota increase for 2022/2023 academic year and student recruitment results at overseas schools are also very encouraging. </li>
<li>Improvement in teaching quality and better facilities should narrow the gap of fees per student (Rmb11,814) with the national average (Rmb20,000), driving net profit growth in 3-5 years. </li>
<li>Capex will come down over time given good upside in utilisation and the removal of management fees will relieve financial position. Its relative valuation is also inexpensive. </li>
</ul>



Hope Education Group Co Ltd (1765 HK) achieved good student enrollment quota increase for 2022/2023 academic year and student recruitment results at overseas schools are also very encouraging. 
Improvement in teaching quality and better facilities should narrow the gap of fees per student (Rmb11,814) with the national average (Rmb20,000), driving net profit growth in 3-5 years. 
Capex will come down over time given good upside in utilisation and the removal of management fees will relieve financial position. Its relative valuation is also inexpensive. 


Hope Education (1765 HK): More than Just Hopes

<ul>
<li>Despite the 21% spike in share price, we believe good student enrollment outlook and earnings prospects 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> are still yet to be fully reflected.</li>
<li>The 70.1% YoY surge in approved top-up degree program quotas in China and the guidance for substantial quota increase for bachelor’s degree and junior college programs are both exciting.</li>
<li>Its comprehensive cooperation agreement with Bank of China Jiangxi Branch adds another peace of mind as this suggests support from the state and lowers regulatory risks, in our view.</li>
</ul>


Despite the 21% spike in share price, we believe good student enrollment outlook and earnings prospects of China Education Group (839 HK) are still yet to be fully reflected.
The 70.1% YoY surge in approved top-up degree program quotas in China and the guidance for substantial quota increase for bachelor’s degree and junior college programs are both exciting.
Its comprehensive cooperation agreement with Bank of China Jiangxi Branch adds another peace of mind as this suggests support from the state and lowers regulatory risks, in our view.


China Education Group (839 HK): Further Evidences for Underlying Health

Equity, Bottom-up Analyst, Investics Research

Sameer Taneja

Equity, Bottom-up Analyst

Investics Research

It is important to note that the information provided by Investics Research is based on publicly available data and own knowledge, which has been gathered and analyzed from a variety of sources. While every effort has been made to ensure the accuracy and completeness of the information provided, it is not guaranteed to be free from errors or omissions. All forecasts and estimates are based on information that has been obtained from public sources that are considered to be reliable. The sources include but are not limited to, company announcements, exchange filings, presentations, etc. Investics does not guarantee the accuracy and completeness of the forecasts, estimates, and/or other information.

Equity Bottom-up Research

<ul>
<li>
<a href="https://www.smartkarma.com/entities/edvantage-group-holdings-ltd" target="_blank" data-smartkarma-citation="entities:28114:1" rel="noopener">Edvantage Group (382 HK)</a>, a play on higher education and vocation in China, now trades at 4.9x FY22e/3.8x FY23e. Concerns over the regulatory overhang are overdone, although they do exist.</li>
<li>With a 30% payout ratio, the stock now trades at dividend yields of 6.1% FY22e/7.9% FY23e, assuming an EPS CAGR of 30% from FY21-23e. </li>
<li>The company continues to execute positively in its release in Q1 FY22 with a 62% increase in gross profits YoY, and it has low gearing at 21.7%  net debt/equity. </li>
</ul>



Edvantage Group (382 HK), a play on higher education and vocation in China, now trades at 4.9x FY22e/3.8x FY23e. Concerns over the regulatory overhang are overdone, although they do exist.
With a 30% payout ratio, the stock now trades at dividend yields of 6.1% FY22e/7.9% FY23e, assuming an EPS CAGR of 30% from FY21-23e. 
The company continues to execute positively in its release in Q1 FY22 with a 62% increase in gross profits YoY, and it has low gearing at 21.7%  net debt/equity. 


Edvantage - Solid Execution Not Priced In

China

China Education Group Holdings Limited offers educational services. The Company provides private universities operating services, education training services, and other services. China Education Group Holdings offers services in Hong Kong.

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China Education Group (839 HK)

China Private Education: A Massive Comeback?

China's latest announcements on vocational education suggested that private involvement in higher education will continue to be welcomed. We like...

Osbert Tang, CFA

Hong Kong Connect Flows (Nov 4th): Tencent, Meituan, Wuxi Biologics, Li Ning

We analyzed southbound Hong Kong connect flows in the past week and highlight flows for Tencent, Meituan, Wuxi Biologics, Li Ning.

Ke Yan, CFA, FRM

Hope Education (1765 HK): More than Just Hopes

The beaten-down stock has a good enrollment quota growth in China and encouraging overseas student recruitment result. Lower capex and removal of...

Osbert Tang, CFA