HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

China New Higher Education / Equity Bottom-Up

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<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>
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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

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<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 27.8% growth in net profit affirmed its solid fundamentals and minimal exposure to regulatory risks. We also welcome its resumption of dividends.</li>
<li>Management expects profitability will be driven by the 48% new student enrollment growth, potential for tuition increase and global education segment recovery. Consensus forecasts are currently too conservative.</li>
<li>Weaker 2H FY22 profit is due to higher depreciation and finance costs but will be absorbed with higher enrollment. Capex will be light and we also like its deleveraging move. </li>
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China Education Group (839 HK)'s 27.8% growth in net profit affirmed its solid fundamentals and minimal exposure to regulatory risks. We also welcome its resumption of dividends.
Management expects profitability will be driven by the 48% new student enrollment growth, potential for tuition increase and global education segment recovery. Consensus forecasts are currently too conservative.
Weaker 2H FY22 profit is due to higher depreciation and finance costs but will be absorbed with higher enrollment. Capex will be light and we also like its deleveraging move. 


China Education Group (839 HK): Shining Through

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<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> has rebounded by 40% from its post-result trough but was still down by 34% from the pre-FY24 result level, despite healthy FY24 results.</li>
<li>Net profit is healthy, but it is the all-scrip final dividends that dragged on the share price. Concerns are on higher gearing, but at 69.9%, this is still acceptable. </li>
<li>The consensus earnings forecast of a 6% growth in FY25 and FY26 seems not excessive. At 2.2x PER and 22% yield for FY25, it seems worthy of the risks.</li>
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China New Higher Education (2001 HK) has rebounded by 40% from its post-result trough but was still down by 34% from the pre-FY24 result level, despite healthy FY24 results.
Net profit is healthy, but it is the all-scrip final dividends that dragged on the share price. Concerns are on higher gearing, but at 69.9%, this is still acceptable. 
The consensus earnings forecast of a 6% growth in FY25 and FY26 seems not excessive. At 2.2x PER and 22% yield for FY25, it seems worthy of the risks.


China New Higher Education (2001 HK): 2.2x PE, 22% Yield, Worth Taking the Risk?

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<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>
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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

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<a href="https://www.smartkarma.com/entities/china-east-education-holdings" target="_blank" data-smartkarma-citation="entities:27843:1" rel="noopener">China East Education (667 HK)</a> remains well-positioned in the government's support of vocational education, despite its YTD outperformance.</li>
<li>Higher average tuition per student, better cost control, accelerating growth in the "Fashion and Beauty" segment,  and new course introduction are the main profit drivers.</li>
<li>Net cash equals 17.2% of the share price, while other peers are struggling with debt repayment. Coupled with stronger earnings CAGR, its premium PERs are justified.</li>
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China East Education (667 HK) remains well-positioned in the government's support of vocational education, despite its YTD outperformance.
Higher average tuition per student, better cost control, accelerating growth in the "Fashion and Beauty" segment,  and new course introduction are the main profit drivers.
Net cash equals 17.2% of the share price, while other peers are struggling with debt repayment. Coupled with stronger earnings CAGR, its premium PERs are justified.


China East Education (667 HK): In an Excellent Position

China

China New University operates private universities in Central and South West China.

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China New Higher Education (2001 HK)