HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<ul>
<li>Positive response 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>'s placement indicated a good return of investor appetite to the sector. Its premium multiples stay well justified even after recent rally. </li>
<li>The HK$1.6bn proceeds will reduce gearing to 29.2% (including contract liabilities) from 41.7% with minimal dilution. Narrowing in valuation gap against asking price of targets means more M&amp;A potential. </li>
<li>More funding for expansion of existing campuses, increase in accommodation and the set up of COVID-19 related curriculum will allow CEG to realise higher revenue per student.</li>
</ul>


Positive response of China Education Group (839 HK)'s placement indicated a good return of investor appetite to the sector. Its premium multiples stay well justified even after recent rally. 
The HK$1.6bn proceeds will reduce gearing to 29.2% (including contract liabilities) from 41.7% with minimal dilution. Narrowing in valuation gap against asking price of targets means more M&amp;A potential. 
More funding for expansion of existing campuses, increase in accommodation and the set up of COVID-19 related curriculum will allow CEG to realise higher revenue per student.


China Education Group (839 HK): Solidifying Investment Thesis After Placement

<ul>
<li>
<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>'s plunge in share price is due to management's guidance for a 10-15% drop in adjusted net profit, significantly lower than the current consensus.</li>
<li>Its decision to pause dividends for the foreseeable future on debt repayment burden and tight offshore refinancing environment for the sector has further disappointed the market.</li>
<li>Based on guidance, its PER of 3.7x and nil dividend yield for FY25 make it unattractive relative to peers (1.7-2.9x PER). We shy away until things improve.</li>
</ul>



China Education Group (839 HK)'s plunge in share price is due to management's guidance for a 10-15% drop in adjusted net profit, significantly lower than the current consensus.
Its decision to pause dividends for the foreseeable future on debt repayment burden and tight offshore refinancing environment for the sector has further disappointed the market.
Based on guidance, its PER of 3.7x and nil dividend yield for FY25 make it unattractive relative to peers (1.7-2.9x PER). We shy away until things improve.


China Education Group (839 HK): A Large Disappointment

China New Higher Education / Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/china-new-university" target="_blank" data-smartkarma-citation="entities:23626:1" rel="noopener">China New Higher Education (2001 HK)</a>'s gearing (including contract liabilities) has come down to 61.2% in 1H25, from 69.9% in FY24 and 84.1% in FY23 - an encouraging trend. </li>
<li>Net profit grew 8.6%, even faster than the full-year consensus forecast of 3.5% growth. There are multiple drivers that support its medium-term outlook.</li>
<li>CNHE trades on 1.7x PER and 0.3x P/B, but the FY25 ROE is a solid 16.6%. Should the payout ratio remain unchanged, its yield will reach 28.4%.</li>
</ul>



China New Higher Education (2001 HK)'s gearing (including contract liabilities) has come down to 61.2% in 1H25, from 69.9% in FY24 and 84.1% in FY23 - an encouraging trend. 
Net profit grew 8.6%, even faster than the full-year consensus forecast of 3.5% growth. There are multiple drivers that support its medium-term outlook.
CNHE trades on 1.7x PER and 0.3x P/B, but the FY25 ROE is a solid 16.6%. Should the payout ratio remain unchanged, its yield will reach 28.4%.


China New Higher Education (2001 HK): Stays Cheap at 1.7x PER and 0.3x P/B

Research and Strategy for the Education Sector, Schoolhouse Solutions

Edward Slade

Research and Strategy for the Education Sector

Schoolhouse Solutions

Schoolhouse is a strategy and research provider for the Education sector. We publish differentiated reports and bespoke research on the sector, focused on private and public companies in Asia-Pacific. Our team has decades of experience working with Education companies ranging from K-12 to Tertiary and Edtech.

Strategy and Research Provider

Thematic (Sector/Industry)

<ul>
<li>Recovery in face-to-face education stocks will accelerate as Chinese international students return on-campus</li>
<li>International K-12 schools will perform strongly as hubs like Dubai and Singapore are booming.</li>
<li>Service providers like <a href="https://www.smartkarma.com/entities/idp-education-ltd" target="_blank" data-smartkarma-citation="entities:1098:1" rel="noopener">IDP Education (IEL AU), </a><a href="https://www.smartkarma.com/entities/flywire-corp" target="_blank" data-smartkarma-citation="entities:33339:1" rel="noopener">Flywire Corp (FLYW US)</a>; schools like Taaleem; and tertiary <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/laureate-education-inc" target="_blank" data-smartkarma-citation="entities:26388:1" rel="noopener">Laureate Education (LAUR US)</a>,  and <a href="https://www.smartkarma.com/entities/icollege-ltd" target="_blank" data-smartkarma-citation="entities:14576:1" rel="noopener">Icollege Ltd (ICT AU)</a> will outperform.</li>
</ul>


Recovery in face-to-face education stocks will accelerate as Chinese international students return on-campus
International K-12 schools will perform strongly as hubs like Dubai and Singapore are booming.
Service providers like IDP Education (IEL AU), Flywire Corp (FLYW US); schools like Taaleem; and tertiary China Education Group (839 HK) , Laureate Education (LAUR US),  and Icollege Ltd (ICT AU) will outperform.


International Education Stocks: Surging Student Volumes

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 October 31st.</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 flows for CNOOC, SMIC, Alibaba, China Mobile, CSPC Pharma, Tencent, Meituan, Li Auto.</li>
</ul>


We analyze the weekly Hong Kong Connect flows with our data engine for holding position as of October 31st.
The top stocks by inflows and outflows were tabulated for all market, HSCEI, mid cap and s/mid cap groups.
We highlight flows for CNOOC, SMIC, Alibaba, China Mobile, CSPC Pharma, Tencent, Meituan, Li Auto.


HK Connect Flows Weekly (Oct 31st): CNOOC, SMIC, Alibaba, China Mobile, CSPC Pharma, Tencent

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)