HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<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> 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>
</ul>



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?

<ul>
<li>Although the reported FY24 net profit plunged 69.7% due to intangible impairments, <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 adjusted net profit grew by 3.3% and adjusted EBITDA by 12.3%.</li>
<li>Based on adjusted net profit, its payout ratio is flat at 40%, implying an 8% dividend yield. This suggests underlying operations are decent and demonstrate confidence in the outlook.</li>
<li>Both tuition and enrollment are expected to sustain growth in FY25, meaning that a consensus forecast of 9% net profit is achievable. Its 4.5x PER does not appear stretched.</li>
</ul>


Although the reported FY24 net profit plunged 69.7% due to intangible impairments, China Education Group (839 HK)'s adjusted net profit grew by 3.3% and adjusted EBITDA by 12.3%.
Based on adjusted net profit, its payout ratio is flat at 40%, implying an 8% dividend yield. This suggests underlying operations are decent and demonstrate confidence in the outlook.
Both tuition and enrollment are expected to sustain growth in FY25, meaning that a consensus forecast of 9% net profit is achievable. Its 4.5x PER does not appear stretched.


China Education Group (839 HK): What's up After the Big Bath?

Asian Hedge Fund Manager, Long Short Equity, Macro

David Mudd

<ul>
<li>HSCI index has seen an outperformance of the consumer discretionary sector since the stimulus announcement while materials and energy sectors have lagged.</li>
<li>
<a href="https://www.smartkarma.com/entities/pop-mart-international-group-l" target="_blank" data-smartkarma-citation="entities:29016:1" rel="noopener">Pop Mart International Group L (9992 HK)</a> announced a blow out 3Q24 revenue number with international revenue up by over 400%. DB raised the its target price to $88.
</li>
<li>
<a href="https://www.smartkarma.com/entities/citic-securities-h" target="_blank" data-smartkarma-citation="entities:463:1" rel="noopener">Citic Securities (H) (6030 HK)</a> was maintained a BUY by Huatai, raising its target price to $28.81.   JP Morgan maintained  OVERWEIGHT on <a href="https://www.smartkarma.com/entities/new-oriental-education-techn" target="_blank" data-smartkarma-citation="entities:32210:1" rel="noopener">New Oriental Education &amp; Technology (9901 HK).</a>
</li>
</ul>


HSCI index has seen an outperformance of the consumer discretionary sector since the stimulus announcement while materials and energy sectors have lagged.

Pop Mart International Group L (9992 HK) announced a blow out 3Q24 revenue number with international revenue up by over 400%. DB raised the its target price to $88.


Citic Securities (H) (6030 HK) was maintained a BUY by Huatai, raising its target price to $28.81.   JP Morgan maintained  OVERWEIGHT on New Oriental Education &amp; Technology (9901 HK).



BUY/SELL/HOLD: Hong Kong Stock Updates (October 30)

Cross Asset Strategy

<ul>
<li>Hong Kong Dollar continues to trade at the strong end of its band  resulting in upward pressure on HIBOR in turn causing a further unwind of the HKD carry trade.</li>
<li>HSI shows the strongest market breadth in 15 years as nearly all members trade above 200 DMA.</li>
<li>
<a href="https://www.smartkarma.com/entities/xtep-international-holdings" target="_blank" data-smartkarma-citation="entities:18118:1" rel="noopener">Xtep International (1368 HK)</a> , <a href="https://www.smartkarma.com/entities/xiaomi-corp" target="_blank" data-smartkarma-citation="entities:24409:1" rel="noopener">Xiaomi Corp (1810 HK)</a> and <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> all had breakouts to form uptrends.  All are part of the consumption sector in China
</li>
</ul>


Hong Kong Dollar continues to trade at the strong end of its band  resulting in upward pressure on HIBOR in turn causing a further unwind of the HKD carry trade.
HSI shows the strongest market breadth in 15 years as nearly all members trade above 200 DMA.

Xtep International (1368 HK) , Xiaomi Corp (1810 HK) and China Education Group (839 HK) all had breakouts to form uptrends.  All are part of the consumption sector in China



Technically Speaking, Breakouts and Breakdowns: HONG KONG (OCTOBER 14)

China

China Kepei Education Group Limited provides educational services. The Company offers high-quality profession-oriented education services and other services. China Kepei Education Group provides services in China.

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Kepei Education (1890 HK)

China Education Group (839 HK): A Large Disappointment

CEG's share price plunged on the back of lower profit and a decision to pause dividends due to high debt repayment and tight refinancing. Its...

Osbert Tang, CFA

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

China New Higher Education sees a 40% share price rebound from the post-result trough but is still down 34% from pre-FY24 result levels. Concerns...

Osbert Tang, CFA

China Education Group (839 HK): What's up After the Big Bath?

CEG reported a 69.7% drop in FY24 net profit due to impairments, but adjusted figures show growth in profit and EBITDA. With a flat payout ratio,...

Osbert Tang, CFA

BUY/SELL/HOLD: Hong Kong Stock Updates (October 30)

The consumer discretionary sector shows increased momentum in Hong Kong. Pop Mart beat on 3Q revenue with 440% growth in revenue outside China....

David Mudd

Technically Speaking, Breakouts and Breakdowns: HONG KONG (OCTOBER 14)

HKD strengthens, HIBOR moves higher and HK shorts become more expensive. HK market breadth reached its highest level in 15 years last week. Xtep,...

David Mudd

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52-week Range

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China Education Group (839 HK): A Large Disappointment

​CEG's share price plunged on the back of lower profit and a decision to pause dividends due to high debt repayment and tight refinancing. Its...

Osbert Tang, CFA

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

​China New Higher Education sees a 40% share price rebound from the post-result trough but is still down 34% from pre-FY24 result levels. Concerns...

Osbert Tang, CFA

China Education Group (839 HK): What's up After the Big Bath?

​CEG reported a 69.7% drop in FY24 net profit due to impairments, but adjusted figures show growth in profit and EBITDA. With a flat payout ratio,...

Osbert Tang, CFA

BUY/SELL/HOLD: Hong Kong Stock Updates (October 30)

The consumer discretionary sector shows increased momentum in Hong Kong. Pop Mart beat on 3Q revenue with 440% growth in revenue outside China....

David Mudd

Technically Speaking, Breakouts and Breakdowns: HONG KONG (OCTOBER 14)

HKD strengthens, HIBOR moves higher and HK shorts become more expensive. HK market breadth reached its highest level in 15 years last week. Xtep,...

David Mudd

CEG's share price plunged on the back of lower profit and a decision to pause dividends due to high debt repayment and tight refinancing. Its...

China New Higher Education sees a 40% share price rebound from the post-result trough but is still down 34% from pre-FY24 result levels. Concerns...

CEG reported a 69.7% drop in FY24 net profit due to impairments, but adjusted figures show growth in profit and EBITDA. With a flat payout ratio,...