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

Equity Bottom-Up

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<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

Research on Tech Companies

Evelyn Zhang

Thematic (Sector/Industry)

<p>A series of recent Chinese policies promoting vocational schools instead of traditional secondary education, and efforts to eliminate after-class cramming makes me to recommend short K12 education related stocks and long vocational training related stocks.</p>

A series of recent Chinese policies promoting vocational schools instead of traditional secondary education, and efforts to eliminate after-class cramming makes me to recommend short K12 education related stocks and long vocational training related stocks.

A Twist of Fate – China’s Suppression of Secondary Education in Favor of Vocational Education

<p><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>, one of the largest high-quality private education groups in the Bay Area, released promising H1 2021 numbers for its result on the 20th of April. Adjusted net profit grew 33% YoY to 199 mn RMB, led by a 33% revenue growth.   We believe that the company will accomplish 439 mn RMB of net profit for FY21 as the contribution of its acquisition fully kicks in for H2 2021.</p>
<p>Based on our estimates, the stock trades at an 18x PE FY21 and 13.5x PE FY22. We believe there could be more upside to the name based on where comps trade in the space currently.</p>

Edvantage Group (382 HK), one of the largest high-quality private education groups in the Bay Area, released promising H1 2021 numbers for its result on the 20th of April. Adjusted net profit grew 33% YoY to 199 mn RMB, led by a 33% revenue growth.   We believe that the company will accomplish 439 mn RMB of net profit for FY21 as the contribution of its acquisition fully kicks in for H2 2021.
Based on our estimates, the stock trades at an 18x PE FY21 and 13.5x PE FY22. We believe there could be more upside to the name based on where comps trade in the space currently.

Edvantage Group: Consistently Good Execution

<p><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> is a play on private higher education in China with a presence in the Greater Bay Area. At a market capitalization of roughly 800 mn USD, this company is a good fit for funds that invest in mid-caps. With a recent capacity expansion by 46%, we see a clear roadmap for increasing enrollments by 8-10% over four years. In addition to this, we believe that tuition fees can sustainably increase by 5-7% CAGR  for the next 3-4 years due to reasonable placement rates in their colleges and strengthening brand recognition.</p>
<h3>The investment thesis here is :</h3>
<ul>
<li>
<strong>The stock is inexpensive and can re-rate as the execution drives more conviction:</strong> We believe the valuation is cheap at 15x FY21/12xFY22  P-E(x) and 23% CAGR revenue growth, predicated on enrolments increasing by 12% CAGR as well as tuition fees increasing by 7-8% CAGR over the next 3-4 years.</li>
<li>
<strong>The additional upside from costs declining: </strong>Education costs account for 15% of sales. A majority of the cost ~76 mn RMB for FY20 (or 13% of the tuition fee of Huanshang College) is an annual licensing fee paid to Guangdong University of Finance and Economics (GUFE), for co-branding with a renowned public university in the region. However, new MoJ Draft regulations require the university to become independent by 2022.  The Group intends to become independent by 2021. If this happens, the education cost will go down to 0 from 76 mn RMB in a phased manner over 3-4 years. We do not factor this into our future estimates. </li>
<li>
<strong>Strong cash position to pursue further growth: </strong>The company has a net cash position of 520 mn RMB.  With Capex plans of 800 mn RMB for its new campus, we believe the company can easily expand its balance sheet and internal accruals.</li>
</ul>
<p>We see this stock easily rerate to a 20x multiple based on its ability to execute and trade higher at 9-10 HKD/share, fuelled by these catalysts.</p>
<h3><strong>Risks </strong></h3>
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<li>
<strong>Regulations on Fees:  </strong>Tuition fees charged by PRC Operating Schools are generally subject to China's relevant government pricing authorities' approval. However, in recent years, PRC government authorities have gradually loosened controls over tuition fees and boarding fees. </li>
<li>
<p><strong>Disappointing M&amp;A:</strong> The company overpaying for assets would be negative for the share price.</p>
</li>
<li>
<strong>Execution:</strong> Given the company recently IPOed, its track record is short.  How the new campus ramps up will be the key to the thesis.  Any stumbles will be bad for the share price.</li>
</ul>

Edvantage Group (382 HK) is a play on private higher education in China with a presence in the Greater Bay Area. At a market capitalization of roughly 800 mn USD, this company is a good fit for funds that invest in mid-caps. With a recent capacity expansion by 46%, we see a clear roadmap for increasing enrollments by 8-10% over four years. In addition to this, we believe that tuition fees can sustainably increase by 5-7% CAGR  for the next 3-4 years due to reasonable placement rates in their colleges and strengthening brand recognition.
The investment thesis here is :


The stock is inexpensive and can re-rate as the execution drives more conviction: We believe the valuation is cheap at 15x FY21/12xFY22  P-E(x) and 23% CAGR revenue growth, predicated on enrolments increasing by 12% CAGR as well as tuition fees increasing by 7-8% CAGR over the next 3-4 years.

The additional upside from costs declining: Education costs account for 15% of sales. A majority of the cost ~76 mn RMB for FY20 (or 13% of the tuition fee of Huanshang College) is an annual licensing fee paid to Guangdong University of Finance and Economics (GUFE), for co-branding with a renowned public university in the region. However, new MoJ Draft regulations require the university to become independent by 2022.  The Group intends to become independent by 2021. If this happens, the education cost will go down to 0 from 76 mn RMB in a phased manner over 3-4 years. We do not factor this into our future estimates. 

Strong cash position to pursue further growth: The company has a net cash position of 520 mn RMB.  With Capex plans of 800 mn RMB for its new campus, we believe the company can easily expand its balance sheet and internal accruals.

We see this stock easily rerate to a 20x multiple based on its ability to execute and trade higher at 9-10 HKD/share, fuelled by these catalysts.
Risks 


Regulations on Fees:  Tuition fees charged by PRC Operating Schools are generally subject to China's relevant government pricing authorities' approval. However, in recent years, PRC government authorities have gradually loosened controls over tuition fees and boarding fees. 

Disappointing M&amp;A: The company overpaying for assets would be negative for the share price.


Execution: Given the company recently IPOed, its track record is short.  How the new campus ramps up will be the key to the thesis.  Any stumbles will be bad for the share price.


Edvantage Group: Executing in a Tough Environment

Equity Analyst, LightStream Research

Shifara Samsudeen, ACMA, CGMA

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

<ul>
<li>One of the largest online education service providers in China, Koolearn’s shares have risen more than 79% since the beginning of this year from HK$18.6 to HK$33.3 by the end of Friday’s close.</li>
<li>The rally in the company’s share price was mainly due to the Covid-19 outbreak which has had a positive impact on Chinese online education companies. Since schools in China closed for Lunar new year in January, the reopening of schools has been delayed in order to prevent the spread of the virus and the parents and students have turned to online education companies.</li>
</ul><div style="text-align: center;" class="content-caption"><strong><em>The Share Prices of Online Education Providers Have Rallied Over the Last Three Months</em></strong></div><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/120/933/original/image_24633394321583123453740.png?1583123455" class="editor-image img-responsive" data-smartkarma-image-id="120933"></figure><div class="content-caption"><em>Source: Cap IQ</em></div><ul><li>Of the online education segments in China, it is the after-school tuition classes (K-12) which has seen the biggest growth over the past few years. In this insight, we take a look at Koolearn’s business model, revenue and margins and valuation in an attempt to assess whether the virus-driven growth is sustainable in the long-run.</li></ul>


One of the largest online education service providers in China, Koolearn’s shares have risen more than 79% since the beginning of this year from HK$18.6 to HK$33.3 by the end of Friday’s close.
The rally in the company’s share price was mainly due to the Covid-19 outbreak which has had a positive impact on Chinese online education companies. Since schools in China closed for Lunar new year in January, the reopening of schools has been delayed in order to prevent the spread of the virus and the parents and students have turned to online education companies.
The Share Prices of Online Education Providers Have Rallied Over the Last Three MonthsSource: Cap IQOf the online education segments in China, it is the after-school tuition classes (K-12) which has seen the biggest growth over the past few years. In this insight, we take a look at Koolearn’s business model, revenue and margins and valuation in an attempt to assess whether the virus-driven growth is sustainable in the long-run.

Koolearn Shares Rise as More Children Move into Online Education; Can They Sustain This Growth?

China

Edvantage Group Holdings Ltd is a private higher education group. The Company operates private, higher education institutions located in China and Australia. Edvantage Group Holdings operates as a holding company.

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Edvantage Group (382 HK)

Edvantage - Solid Execution Not Priced In

Edvantage Group (382 HK), a play on higher education and vocation in China, now trades at 4.9x/3.8x FY22e/FY23e and a dividend yield of 6.1%/7.8%...

Sameer Taneja

A Twist of Fate – China’s Suppression of Secondary Education in Favor of Vocational Education

Change is afoot in one of China's main social mobility mechanism, the education system. The country is promoting vocational education in an effort...

Evelyn Zhang

Edvantage Group: Consistently Good Execution

Edvantage is a high-quality education company with institutions in the Greater Bay Area. Trading at an undemanding valuation of 18x FY21 and 13.5x...

Sameer Taneja

Edvantage Group: Executing in a Tough Environment

Edvantage Group (382 HK), is a great long-term play on education in the Greater Bay Area. Trading at 15x FY21/12x FY22 with >20% CAGR growth and...

Sameer Taneja

Koolearn Shares Rise as More Children Move into Online Education; Can They Sustain This Growth?

One of the largest online education service providers in China, Koolearn’s shares have risen more than 79% since the beginning of this year from...

Shifara Samsudeen, ACMA, CGMA

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