Equity, Bottom-up Analyst, Investics Research

Sameer Taneja

A buy-side analyst with over 15 years of experience investing in Asian markets and specializing in the mid-small cap space, emphasizing value investing in companies with good free cash flows/dividends and long-term holding horizons. 
Exempt Financial Adviser (EFA) under CrossASEAN Research Pte Ltd. 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 Analyst

Edvantage Group: Consistently Good Execution

Edvantage - Solid Execution Not Priced In

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

<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.
<h3>The investment thesis here is :</h3>
<ul>
<li>
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.</li>
<li>
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. </li>
<li>
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.</li>
</ul>
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.
<h3>Risks </h3>
<ul>
<li>
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. </li>
<li>
Disappointing M&amp;A: The company overpaying for assets would be negative for the share price.
</li>
<li>
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.</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