HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

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<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> has turned more attractive after a valuation retreat and the return of reported and adjusted net profit to a positive trend in its 1H24 result.</li>
<li>Increase in the proportion of undergraduate studies, a better subject specialisation mix, higher accommodation revenue, and a rise in international education will drive unit student revenue.</li>
<li>More capacity upgrades will allow for a steady increase in student enrollment. Management expects adjusted EBITDA margin to stay stable in the next few years.</li>
</ul>



China Education Group (839 HK) has turned more attractive after a valuation retreat and the return of reported and adjusted net profit to a positive trend in its 1H24 result.
Increase in the proportion of undergraduate studies, a better subject specialisation mix, higher accommodation revenue, and a rise in international education will drive unit student revenue.
More capacity upgrades will allow for a steady increase in student enrollment. Management expects adjusted EBITDA margin to stay stable in the next few years.


China Education Group (839 HK): On Balance, Worth a Bet Now

Articles from Caixin Global, Caixin Global

Caixin Global

Articles from Caixin Global

Caixin is a media group dedicated to providing financial and business news through periodicals, online content, mobile apps, conferences, books and TV/video programs. Caixin aims to blaze a trail that helps traditional media prosper in the new media age through integrated multimedia platforms.

News from Caixin

<ul><li>Some global investors are urging Chinese private education giant XJ International Holdings Co. Ltd. to redeem half of its $350 million in bonds before maturity, as the creditors fear the Hong Kong-listed firm may intentionally default on repayments.</li><li>The bonds are due in 2026, but the creditors asked for the early redemption to be completed by March 2 in a letter sent to the Chinese company last month by their legal adviser, Chicago-headquartered global law firm Kirkland &amp; Ellis LLP.</li><li>The creditors are a group of large international investors who collectively hold no less than $154 million, or about 50%, of the bonds’ outstanding principal amount, according to the letter seen by Caixin.</li></ul>

Some global investors are urging Chinese private education giant XJ International Holdings Co. Ltd. to redeem half of its $350 million in bonds before maturity, as the creditors fear the Hong Kong-listed firm may intentionally default on repayments.The bonds are due in 2026, but the creditors asked for the early redemption to be completed by March 2 in a letter sent to the Chinese company last month by their legal adviser, Chicago-headquartered global law firm Kirkland &amp; Ellis LLP.The creditors are a group of large international investors who collectively hold no less than $154 million, or about 50%, of the bonds’ outstanding principal amount, according to the letter seen by Caixin.

Chinese Education Giant Urged to Repay Bondholders Early as Default Fears Mount 

<ul>
<li>
<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> is interesting as it is probably the only education company with no debt. Net cash amounted to Rmb2.1bn, or 42% of its market capitalisation. </li>
<li>Earnings have bottomed out and the marginal YoY decline in 1H23 is due to upfront costs for staff recruitment. Its vocational education focus also faces fewer regulatory risks.</li>
<li>We consider it a potential privatisation candidate at 0.8x P/B. Its major shareholders owned 75% of the company, leaving a free float of less than HK$1.4bn.</li>
</ul>



China East Education (667 HK) is interesting as it is probably the only education company with no debt. Net cash amounted to Rmb2.1bn, or 42% of its market capitalisation. 
Earnings have bottomed out and the marginal YoY decline in 1H23 is due to upfront costs for staff recruitment. Its vocational education focus also faces fewer regulatory risks.
We consider it a potential privatisation candidate at 0.8x P/B. Its major shareholders owned 75% of the company, leaving a free float of less than HK$1.4bn.


China East Education (667 HK): Getting More Interesting

<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> appears to be facing the headwinds from higher USD interest rate and reduction in capitalised interest. The intangible write-off is another drag on FY23.</li>
<li>Newly registered students increased 17.8% for FY24. With better average fees, this will help the topline. Our concerns are high finance and operating costs will erode revenue growth.</li>
<li>Consensus is overly aggressive and there are risks of downgrade. Earnings may re-accelerate in the future, but weaker 1H FY24F keeps us on the sideline in the short term. </li>
</ul>



China Education Group (839 HK) appears to be facing the headwinds from higher USD interest rate and reduction in capitalised interest. The intangible write-off is another drag on FY23.
Newly registered students increased 17.8% for FY24. With better average fees, this will help the topline. Our concerns are high finance and operating costs will erode revenue growth.
Consensus is overly aggressive and there are risks of downgrade. Earnings may re-accelerate in the future, but weaker 1H FY24F keeps us on the sideline in the short term. 


China Education Group (839 HK): Not so Encouraging in the near Term

Education Sector Analyst, Schoolhouse Solutions

Anik Siwach

Education Sector Analyst

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

<ul>
<li>
Agile Response to Visa Changes: NextEd's nimble approach to the end of the COVID-19 408 visa showcases adaptability in uncertain times.</li>
<li>
Tech Sector Growth Potential: Expanding in the thriving tech field, NextEd taps into strong post-study work rights and sector support.</li>
<li>
Regulatory Challenges: Navigating regulatory shifts, NextEd's resilience shines amid uncertainty in the non-university education landscape.</li>
</ul>



Agile Response to Visa Changes: NextEd's nimble approach to the end of the COVID-19 408 visa showcases adaptability in uncertain times.

Tech Sector Growth Potential: Expanding in the thriving tech field, NextEd taps into strong post-study work rights and sector support.

Regulatory Challenges: Navigating regulatory shifts, NextEd's resilience shines amid uncertainty in the non-university education landscape.


NextEd Group (NXD):  Whiplash! Market Reaction to Australia’s Visa Changes Highlights the Risk.

Hong Kong

China Education Group operates private higher and secondary vocational education institutions across Mainland China, Australia, and the UK. The company offers a range of programs including junior college diplomas, bachelor's and master's degrees, continuing education, and vocational training, alongside educational consultancy services. It was founded in 1989 and is headquartered in Central, Hong Kong.

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China Education Group (839 HK)