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

APAC IPOs & Placements

Zhen Zhou, Toh

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

Hope Education Group Co Ltd / Equity Capital Markets

<div><p><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> is looking to raise US$608m in its top-up placement + convertible bond. We have covered the company previous placement and IPO in:</p></div><div><ul style="list-style-type: disc;">
<li>
<a href="https://www.smartkarma.com/insights/hope-education-placement-2019-acquisitions-paid-off-and-finally-made-a-comeback-in-2020" target="_blank" data-smartkarma-citation="insights:41913" rel="noopener">Hope Education (希望教育) Placement - 2019 Acquisitions Paid off and Finally Made a Comeback in 2020</a> </li>
<li>
<a href="https://www.smartkarma.com/insights/hope-education-ipo-review-riddled-with-related-party-payments-and-confusing-transactions" target="_blank" data-smartkarma-citation="insights:22387" rel="noopener">Hope Education (希望教育) IPO Review - Riddled with Related Party Payments and Confusing Transactions</a> </li>
<li>
<a href="https://www.smartkarma.com/insights/hope-education-ipo-trading-appears-fully-priced-for-now" target="_blank" data-smartkarma-citation="insights:22699" rel="noopener">Hope Education (希望教育) IPO Trading - Appears Fully Priced for Now</a> </li>
</ul></div><div><p>In this note, we will discuss deal dynamics and run the deal through our ECM framework.</p></div>

Hope Education Group Co Ltd (1765 HK) is looking to raise US$608m in its top-up placement + convertible bond. We have covered the company previous placement and IPO in:

Hope Education (希望教育) Placement - 2019 Acquisitions Paid off and Finally Made a Comeback in 2020 

Hope Education (希望教育) IPO Review - Riddled with Related Party Payments and Confusing Transactions 

Hope Education (希望教育) IPO Trading - Appears Fully Priced for Now 
In this note, we will discuss deal dynamics and run the deal through our ECM framework.

Hope Education (希望教育) Placement - Back for More Cash and Readying up for Acquisitions

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

Ke Yan, CFA, FRM

Asia Pac IPO & Placement Research, China biotech

Quantitative Analysis

<p>Hong Kong SFC reported yesterday for aggregate short position on Aug 07. The aggregate short value for equities increased by $848m (+1.4%) WoW but decreased by $3,070m (-4.7%) over the preceding four weeks.</p>
<p>Most shorted stocks by aggregate short value of positions are <a href="https://www.smartkarma.com/entities/ping-an-insurance-grp-co-of-china-ltd" target="_blank" data-smartkarma-citation="entities:12880:1" rel="noopener">Ping An Insurance (H) (2318 HK)</a> ($9,090m, -4.7% WoW), <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent Holdings (700 HK)</a> ($3,021m, -3.9% WoW), <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan Dianping (3690 HK)</a> ($1,920m, +25.3% WoW), <a href="https://www.smartkarma.com/entities/zhongsheng-group-holdings" target="_blank" data-smartkarma-citation="entities:10573:1" rel="noopener">Zhongsheng Group (881 HK)</a> ($1,334m, +3.0% WoW), <a href="https://www.smartkarma.com/entities/ping-an-healthcare-and-technology-company-limited" target="_blank" data-smartkarma-citation="entities:27008:1" rel="noopener">Ping An Healthcare and Technology Company Limited (1833 HK)</a> ($1,284m, -0.8% WoW).</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/152/739/original/image_53726964171597567627628.png?1597567627" class="editor-image img-responsive" data-smartkarma-image-id="152739"></figure>

Hong Kong SFC reported yesterday for aggregate short position on Aug 07. The aggregate short value for equities increased by $848m (+1.4%) WoW but decreased by $3,070m (-4.7%) over the preceding four weeks.
Most shorted stocks by aggregate short value of positions are Ping An Insurance (H) (2318 HK) ($9,090m, -4.7% WoW), Tencent Holdings (700 HK) ($3,021m, -3.9% WoW), Meituan Dianping (3690 HK) ($1,920m, +25.3% WoW), Zhongsheng Group (881 HK) ($1,334m, +3.0% WoW), Ping An Healthcare and Technology Company Limited (1833 HK) ($1,284m, -0.8% WoW).


HK Short Report: Alibaba Health, Hope Education

<p><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> is looking to raise US$130m in its primary placement. We have covered the company's IPO in:</p><ul>
<li>
<a href="https://www.smartkarma.com/insights/hope-education-ipo-review-riddled-with-related-party-payments-and-confusing-transactions" target="_blank" data-smartkarma-citation="insights:22387" rel="noopener">Hope Education (希望教育) IPO Review - Riddled with Related Party Payments and Confusing Transactions</a> </li>
<li>
<a href="https://www.smartkarma.com/insights/hope-education-ipo-trading-appears-fully-priced-for-now" target="_blank" data-smartkarma-citation="insights:22699" rel="noopener">Hope Education (希望教育) IPO Trading - Appears Fully Priced for Now</a> </li>
</ul><p>In this note, we will look at the deal dynamics and run the placement through our framework.</p>

Hope Education Group Co Ltd (1765 HK) is looking to raise US$130m in its primary placement. We have covered the company's IPO in:

Hope Education (希望教育) IPO Review - Riddled with Related Party Payments and Confusing Transactions 

Hope Education (希望教育) IPO Trading - Appears Fully Priced for Now 
In this note, we will look at the deal dynamics and run the placement through our framework.

Hope Education (希望教育) Placement - 2019 Acquisitions Paid off and Finally Made a Comeback in 2020

Hong Kong

Hope Education Group Co, Ltd. offers educational services. The Company provides educational training, knowledge point sharing, activities arrangement, and other services. Hope Education Group offers its services throughout China.

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Hope Education Group Co Ltd (1765 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

Hope Education (希望教育) Placement - Back for More Cash and Readying up for Acquisitions

Hope Education Group Co Ltd (1765 HK) is looking to raise US$608m in its top-up placement + convertible bond. n this note, we will mainly look at...

Zhen Zhou, Toh

HK Short Report: Alibaba Health, Hope Education

Hong Kong SFC reported yesterday for aggregate short position on Aug 07. The aggregate short value for equities increased by $848m (+1.4%) WoW but...

Ke Yan, CFA, FRM

Hope Education (希望教育) Placement - 2019 Acquisitions Paid off and Finally Made a Comeback in 2020

Hope Education Group Co Ltd (1765 HK) is looking to raise US$130m in its primary placement. We have covered the company's IPO in: Hope Education...

Zhen Zhou, Toh

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