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> 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

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Index Rebalance

Brilliance China Automotive / Index Rebalance

<ul>
<li>Friday was the review cutoff for the September rebalance of the ASX family of indices. The September changes for the Hang Seng family of indices were also announced.</li>
<li>The September changes for the <a href="https://www.smartkarma.com/entities/sse-science-and-technology-innovation-board-50-index" target="_blank" data-smartkarma-citation="entities:29279:1" rel="noopener">SSE STAR50 (STAR50 INDEX)</a> will be announced after the close of trading on 25 August.</li>
<li>For a second week running, there were big inflows to mainland China ETFs and were spread across multiple index trackers. There were outflows from <a href="https://www.smartkarma.com/entities/ishares-msci-emerging-markets" target="_blank" data-smartkarma-citation="entities:438:1" rel="noopener">iShares Emerging Markets (EEM US)</a>. </li>
</ul>


Friday was the review cutoff for the September rebalance of the ASX family of indices. The September changes for the Hang Seng family of indices were also announced.
The September changes for the SSE STAR50 (STAR50 INDEX) will be announced after the close of trading on 25 August.
For a second week running, there were big inflows to mainland China ETFs and were spread across multiple index trackers. There were outflows from iShares Emerging Markets (EEM US). 


Index Rebalance & ETF Flow Recap: ASX, NEXT50, MVMVA, MVMVW, Celltrion, Brilliance, KQ150, HSCI

China

China Yuhua Education provides comprehensive private education services, including kindergarten, K-12, university, and vocational training, across the People's Republic of China and Thailand. The company also engages in property management and research and training services. It was founded in 2001 and is headquartered in Zhengzhou, People's Republic of China.

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China Yuhua Education (6169 HK)

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

China Education became more attractive as net profit returned to a positive trend in 1H24. Higher revenue per student and an increase in student...

Osbert Tang, CFA

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

Some global investors are urging Chinese private education giant XJ International Holdings Co. Ltd. to redeem half of its $350 million in bonds...

Caixin Global

China East Education (667 HK): Getting More Interesting

China East Education is debt-free with strong net cash. Earnings have stabilised, and it faces fewer regulatory risks. It is a potential...

Osbert Tang, CFA

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

CEG is facing challenges from higher USD interest rates, reduced capitalised interest, and write-offs. Despite a 17.8% increase in new students,...

Osbert Tang, CFA

Index Rebalance & ETF Flow Recap: ASX, NEXT50, MVMVA, MVMVW, Celltrion, Brilliance, KQ150, HSCI

This recap highlights Insights covering Asian index rebalances (announcements/ forecasts/ IPO Fast Entry/ M&A driven changes). We also highlight...

Brian Freitas

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

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

China Education became more attractive as net profit returned to a positive trend in 1H24. Higher revenue per student and an increase in student...

Osbert Tang, CFA

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

Some global investors are urging Chinese private education giant XJ International Holdings Co. Ltd. to redeem half of its $350 million in bonds...

Caixin Global

China East Education (667 HK): Getting More Interesting

​China East Education is debt-free with strong net cash. Earnings have stabilised, and it faces fewer regulatory risks. It is a potential...

Osbert Tang, CFA

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

​CEG is facing challenges from higher USD interest rates, reduced capitalised interest, and write-offs. Despite a 17.8% increase in new students,...

Osbert Tang, CFA

Index Rebalance & ETF Flow Recap: ASX, NEXT50, MVMVA, MVMVW, Celltrion, Brilliance, KQ150, HSCI

This recap highlights Insights covering Asian index rebalances (announcements/ forecasts/ IPO Fast Entry/ M&A driven changes). We also highlight...

Brian Freitas

China East Education is debt-free with strong net cash. Earnings have stabilised, and it faces fewer regulatory risks. It is a potential...

CEG is facing challenges from higher USD interest rates, reduced capitalised interest, and write-offs. Despite a 17.8% increase in new students,...