Overseas Chinese Equities, Aequitas Research

Ming Lu

A veteran with 19-year experience in equity research.

Geographical coverage:
* Companies operating in China, but listed in Hong Kong and the U.S.
* Previously China A-share (listed in mainland China).

Equity sector coverage:
* Chinese App / Internet-based consumption in China, e.g., Alibaba, Tencent, etc.
* Previously covered education, transportation, telecom, power, bank, advertisement, hotel, etc.

Research methods:
* Generally bottom-up.
* Talk to related people on the ground.  Talk to readers and independent writers for analyzing a news portal.  Talk to parents and teachers for analyzing a tutoring school. 
* Visit stores and show photos as evidence in notes.
* Do technical analysis when finding a short-seller attacking an equity.

Languages:
* English
* Mandarin Chinese (Official language of China)
* Shanghainese (Language of Shanghai, the most developed city in China)
* Cantonese (Language of Hong Kong and Canton Province, one of the most developed provinces in China)

Overseas Chinese Equities

Tianli Education (1773 HK) Grows Dramatically Without Typical Shortages, Upside 22%~43%

Tianli Education IPO: A Quality Pure K-12 Player, High Growth but Fairly Valued at High End

Kepei Education IPO: The Teacher Achieves Higher Margin Than Pure Businessmen

High School Enrolment Reform at Shanghai Pushing Students to Tutoring and Private Schools

Maple Leaf (1317 HK) – International School, Well Positioned, But Undervalued

Virscend (1565HK) – Revenues Accelerated & Margin Improved in 2H17

Virscend (1565 HK) – Neglected Selective Schools in Southwest China

Thematic (Sector/Industry)

China Consumer services / Thematic (Sector/Industry)

China Maple Leaf Educational Systems (1317 HK)

<ul><li>Most private school operators are also property developers.</li><li>Schools provide stable cash inflows, so that some developers stopped property investment to focus on schools.</li><li>The 1st risk: Property developers may borrow money from schools. They did that before.</li><li>The 2nd risk: Property developers are schools’ landlords and the lease contracts will be based on re-negotiations between relatives.  This raises corporate governance issues.</li><li>In general, we are still optimistic about private schools.</li></ul>

Most private school operators are also property developers.Schools provide stable cash inflows, so that some developers stopped property investment to focus on schools.The 1st risk: Property developers may borrow money from schools. They did that before.The 2nd risk: Property developers are schools’ landlords and the lease contracts will be based on re-negotiations between relatives.  This raises corporate governance issues.In general, we are still optimistic about private schools.

Key Risk to Private Schools: Property Developers Standing Behind