Equity, Bottom-up Analyst, Investics Research

Sameer Taneja

Equity, Bottom-up Analyst

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

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

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.

Equity Capital Markets

Since the start of 2019 till date, we have covered 96 IPOs. Despite the market turmoil over the past two months, over a third, or 40 IPOs remain above their listing price. 
In this insight, we'll take a quick look at the universe overall and how some of the IPOs in Hong Kong have been fairing.

Since the start of 2019 till date, we have covered 96 IPOs. Despite the market turmoil over the past two months, over a third, or 40 IPOs remain above their listing price. 
In this insight, we'll take a quick look at the universe overall and how some of the IPOs in Hong Kong have been fairing. 

Asia Pac ECM and Index Rebal, Shenton Research

Ke Yan, CFA, FRM

Asia Pac ECM and Index Rebal

Asia Pac IPO & Placement Research, China Biotech

DZT Research

DZT Research is an independent Asia Pacific equity specialist. Our quantitative research covers index rebalancing flows, alongside exchange data analytics accross Asia Pacific. On the equity capital markets side, we focus on Asia Pacific ECM, especially biotech and TMT. Our lead analyst is frequently cited by international media.

Hansoh Pharmaceutical / Equity Capital Markets

At the beginning of this year, we at Aequitas Research wrote on IPO analytics of deals across Asia-Pacific from 2016 to 2018. If you have not read our in-depth reports, you can find the two-part report in the following links:
<ul>
<li><a href="https://www.smartkarma.com/insights/ipo-analytics-cut-your-losses-and-let-your-profits-run-holds-true-for-ipos" target="_blank" rel="noopener">IPO Analytics: Cut Your Losses and Let Your Profits Run, Holds True for IPOs</a></li>
<li><a href="https://www.smartkarma.com/insights/ipo-analytics-corporate-governance-alpha-generator-shortlist-of-bookrunners-to-avoid-keep-happy" target="_blank" rel="noopener">IPO Analytics: Corporate Governance - Alpha Generator, Shortlist of Bookrunners to Avoid/​Keep Happy</a></li>
</ul>
Over the past few years, we have also researched the IPO performance for the Hong Kong market, which can be found in the following links:
<ul>
<li><a href="https://www.smartkarma.com/insights/5-key-charts-to-wrap-up-2015-hk-ipo-broker-sector-and-retail-analytics" target="_blank" rel="noopener">5 Key Charts to Wrap-Up 2015 HK IPO - Broker, Sector, and Retail Analytics</a></li>
<li><a href="https://www.smartkarma.com/insights/broker-sector-and-retail-analytics-of-2016-hk-ipo" target="_blank" rel="noopener">Broker, Sector and Retail Analytics of 2016 HK IPOs</a></li>
<li><a href="https://www.smartkarma.com/insights/2017-hk-ipos-analytics-good-deals-don-t-need-cornerstones" target="_blank" rel="noopener">2017 HK IPOs Analytics: Good Deals Don’t Need Cornerstones</a></li>
</ul>
We have written a short note on the statistic by sectors <a href="https://www.smartkarma.com/insights/hk-ipo-analytics-1h2019-healthcare-and-consumer-discretionary-stand-out" target="_blank" rel="noopener">HK IPO Analytics 1H2019: Healthcare and Consumer Discretionary Stand Out</a>. In this insight, we will do a wrap up of performance for Hong Kong IPO listed in the first half of the year by main brokers running the deal, namely sponsors. Our research suggests that while the deals sponsored by MS did well in 1H2019, deals sponsored by CICC didn't usually perform well immediately after listing. Deals sponsored by GS, BAML and BNP were at the bottom in terms of performance.

At the beginning of this year, we at Aequitas Research wrote on IPO analytics of deals across Asia-Pacific from 2016 to 2018. If you have not read our in-depth reports, you can find the two-part report in the following links:

IPO Analytics: Cut Your Losses and Let Your Profits Run, Holds True for IPOs
IPO Analytics: Corporate Governance - Alpha Generator, Shortlist of Bookrunners to Avoid/​Keep Happy

Over the past few years, we have also researched the IPO performance for the Hong Kong market, which can be found in the following links:

5 Key Charts to Wrap-Up 2015 HK IPO - Broker, Sector, and Retail Analytics
Broker, Sector and Retail Analytics of 2016 HK IPOs
2017 HK IPOs Analytics: Good Deals Don’t Need Cornerstones

We have written a short note on the statistic by sectors HK IPO Analytics 1H2019: Healthcare and Consumer Discretionary Stand Out. In this insight, we will do a wrap up of performance for Hong Kong IPO listed in the first half of the year by main brokers running the deal, namely sponsors. Our research suggests that while the deals sponsored by MS did well in 1H2019, deals sponsored by CICC didn't usually perform well immediately after listing. Deals sponsored by GS, BAML and BNP were at the bottom in terms of performance.

HK IPO Analytics 1H2019: MS and CICC Stand Out

At the beginning of this year, we at Aequitas Research wrote on IPO analytics of deals across Asia-Pacific from 2016 to 2018. If you have not read our in-depth reports, you can find the two parts report in the following links:
<ul>
<li><a href="https://www.smartkarma.com/insights/ipo-analytics-cut-your-losses-and-let-your-profits-run-holds-true-for-ipos" target="_blank" rel="noopener">IPO Analytics: Cut Your Losses and Let Your Profits Run, Holds True for IPOs</a></li>
<li><a href="https://www.smartkarma.com/insights/ipo-analytics-corporate-governance-alpha-generator-shortlist-of-bookrunners-to-avoid-keep-happy" target="_blank" rel="noopener">IPO Analytics: Corporate Governance - Alpha Generator, Shortlist of Bookrunners to Avoid/​Keep Happy</a></li>
</ul>
Over the past few years, we have also researched the IPO performance for the Hong Kong market, which can be found in the following links:
<ul>
<li><a href="https://www.smartkarma.com/insights/5-key-charts-to-wrap-up-2015-hk-ipo-broker-sector-and-retail-analytics" target="_blank" rel="noopener">5 Key Charts to Wrap-Up 2015 HK IPO - Broker, Sector, and Retail Analytics</a></li>
<li><a href="https://www.smartkarma.com/insights/broker-sector-and-retail-analytics-of-2016-hk-ipo" target="_blank" rel="noopener">Broker, Sector and Retail Analytics of 2016 HK IPOs</a></li>
<li><a href="https://www.smartkarma.com/insights/2017-hk-ipos-analytics-good-deals-don-t-need-cornerstones" target="_blank" rel="noopener">2017 HK IPOs Analytics: Good Deals Don’t Need Cornerstones</a></li>
</ul>
In this insight, we will do a wrap up of performance for Hong Kong IPO listed in the first half of the year. Our research suggests that the Health Care sector particularly biotech listings created superior outperformance in the period. Having said, that, one has to be careful choosing the right one to enter and shouldn't be participating in the deals from the sector unconditionally.

At the beginning of this year, we at Aequitas Research wrote on IPO analytics of deals across Asia-Pacific from 2016 to 2018. If you have not read our in-depth reports, you can find the two parts report in the following links:

IPO Analytics: Cut Your Losses and Let Your Profits Run, Holds True for IPOs
IPO Analytics: Corporate Governance - Alpha Generator, Shortlist of Bookrunners to Avoid/​Keep Happy

Over the past few years, we have also researched the IPO performance for the Hong Kong market, which can be found in the following links:

5 Key Charts to Wrap-Up 2015 HK IPO - Broker, Sector, and Retail Analytics
Broker, Sector and Retail Analytics of 2016 HK IPOs
2017 HK IPOs Analytics: Good Deals Don’t Need Cornerstones

In this insight, we will do a wrap up of performance for Hong Kong IPO listed in the first half of the year. Our research suggests that the Health Care sector particularly biotech listings created superior outperformance in the period. Having said, that, one has to be careful choosing the right one to enter and shouldn't be participating in the deals from the sector unconditionally. 

HK IPO Analytics 1H2019: Healthcare and Consumer Discretionary Stand Out

APAC IPOs & Placements

Zhen Zhou, Toh

<a href="https://www.smartkarma.com/entities/edvantage-group" target="_blank" data-smartkarma-citation="entities:28114:1">Edvantage Group (EDV HK)</a> is planning to raise about US$100m in its upcoming IPO.
The company grew its revenue consistently at 5.4% CAGR from FY2016 to FY2018 driven by higher tuition fees charged per enrollment. Profitability had improved strongly over the same period with PATMI margin almost doubling over the same period, bolstered by investment and other incomes.
Our concern is that near-term growth will be limited to raising tuition fee charged per enrollment because the two schools in China (main revenue driver) have been operating at high utilization rate and capacity expansion will only be completed in 2020.

Edvantage Group (EDV HK) is planning to raise about US$100m in its upcoming IPO.
The company grew its revenue consistently at 5.4% CAGR from FY2016 to FY2018 driven by higher tuition fees charged per enrollment. Profitability had improved strongly over the same period with PATMI margin almost doubling over the same period, bolstered by investment and other incomes.
Our concern is that near-term growth will be limited to raising tuition fee charged per enrollment because the two schools in China (main revenue driver) have been operating at high utilization rate and capacity expansion will only be completed in 2020.

Edvantage (中汇集团) Pre-IPO Review - Slow and Steady

China

China Kepei Education Group provides private vocational education services, offering profession-oriented and vocational education across engineering, economics, management, education, and art majors. The company operates degree-granting undergraduate institutions and secondary vocational schools, alongside services like consulting and technical training. It was founded in 2000 and is headquartered in Zhaoqing, People's Republic of China.

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China Kepei Education Group (1890 HK)

Edvantage Group: Executing in a Tough Environment

Edvantage Group (382 HK), is a great long-term play on education in the Greater Bay Area. Trading at 15x FY21/12x FY22 with >20% CAGR growth and...

Sameer Taneja

Trade/Investment Ideas from 2019/20 IPOs

Since the start of 2019 till date, we have covered 96 IPOs. Despite the market turmoil over the past two months, over a third, or 40 IPOs remain...

Sumeet Singh

HK IPO Analytics 1H2019: MS and CICC Stand Out

At the beginning of this year, we at Aequitas Research wrote on IPO analytics of deals across Asia-Pacific from 2016 to 2018. If you have not read...

Ke Yan, CFA, FRM

HK IPO Analytics 1H2019: Healthcare and Consumer Discretionary Stand Out

At the beginning of this year, we at Aequitas Research wrote on IPO analytics of deals across Asia-Pacific from 2016 to 2018. If you have not read...

Ke Yan, CFA, FRM

Edvantage (中汇集团) Pre-IPO Review - Slow and Steady

Edvantage Group (EDV HK) is planning to raise about US$100m in its upcoming IPO. The company grew its revenue consistently at 5.4% CAGR from FY2016...

Zhen Zhou, Toh

Price Gauge

52-week Range

Market Cap (USDm)

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