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 retreated 23% from recent high with no regulatory and company news. Given its secured earnings growth outlook, we see an opportunity. </li>
<li>We believe drivers are higher enrollment and tuition, further capacity growth, good progress in overseas education and light capex. There are positive developments in these aspects recently. </li>
<li>CEG may return unused share buyback funds to shareholders via dividend, suggesting a potential resumption of payout. At just 5.7x PER for FY23F, its growth prospect is undervalued.</li>
</ul>



China Education Group (839 HK) has retreated 23% from recent high with no regulatory and company news. Given its secured earnings growth outlook, we see an opportunity. 
We believe drivers are higher enrollment and tuition, further capacity growth, good progress in overseas education and light capex. There are positive developments in these aspects recently. 
CEG may return unused share buyback funds to shareholders via dividend, suggesting a potential resumption of payout. At just 5.7x PER for FY23F, its growth prospect is undervalued.


China Education Group (839 HK): Sustaining Growth Trajectory

Hope Education Group Co Ltd / Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/hope-education-group-co-ltd" target="_blank" data-smartkarma-citation="entities:27321:1" rel="noopener">Hope Education Group Co Ltd (1765 HK)</a> achieved good student enrollment quota increase for 2022/2023 academic year and student recruitment results at overseas schools are also very encouraging. </li>
<li>Improvement in teaching quality and better facilities should narrow the gap of fees per student (Rmb11,814) with the national average (Rmb20,000), driving net profit growth in 3-5 years. </li>
<li>Capex will come down over time given good upside in utilisation and the removal of management fees will relieve financial position. Its relative valuation is also inexpensive. </li>
</ul>



Hope Education Group Co Ltd (1765 HK) achieved good student enrollment quota increase for 2022/2023 academic year and student recruitment results at overseas schools are also very encouraging. 
Improvement in teaching quality and better facilities should narrow the gap of fees per student (Rmb11,814) with the national average (Rmb20,000), driving net profit growth in 3-5 years. 
Capex will come down over time given good upside in utilisation and the removal of management fees will relieve financial position. Its relative valuation is also inexpensive. 


Hope Education (1765 HK): More than Just Hopes

<ul>
<li>Despite the 21% spike in share price, we believe good student enrollment outlook and earnings prospects 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> are still yet to be fully reflected.</li>
<li>The 70.1% YoY surge in approved top-up degree program quotas in China and the guidance for substantial quota increase for bachelor’s degree and junior college programs are both exciting.</li>
<li>Its comprehensive cooperation agreement with Bank of China Jiangxi Branch adds another peace of mind as this suggests support from the state and lowers regulatory risks, in our view.</li>
</ul>


Despite the 21% spike in share price, we believe good student enrollment outlook and earnings prospects of China Education Group (839 HK) are still yet to be fully reflected.
The 70.1% YoY surge in approved top-up degree program quotas in China and the guidance for substantial quota increase for bachelor’s degree and junior college programs are both exciting.
Its comprehensive cooperation agreement with Bank of China Jiangxi Branch adds another peace of mind as this suggests support from the state and lowers regulatory risks, in our view.


China Education Group (839 HK): Further Evidences for Underlying Health

<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> demonstrates resilience amid market concerns on policy uncertainties by posting a 40.5% growth in 1H22 reported net profit and 20.1% growth in adjusted net profit. </li>
<li>Higher education segment saw 44% profit growth and strengths will sustain into 2H22. Weaker secondary vocational and global education segments will witness a sharp recovery, based on latest application statistics.</li>
<li>CEG has secured increase in tuition and quota in the coming school year, and this will boost FY23 outlook. It opts for an Rmb500m buyback, instead of paying interim dividend.</li>
</ul>



China Education Group (839 HK) demonstrates resilience amid market concerns on policy uncertainties by posting a 40.5% growth in 1H22 reported net profit and 20.1% growth in adjusted net profit. 
Higher education segment saw 44% profit growth and strengths will sustain into 2H22. Weaker secondary vocational and global education segments will witness a sharp recovery, based on latest application statistics.
CEG has secured increase in tuition and quota in the coming school year, and this will boost FY23 outlook. It opts for an Rmb500m buyback, instead of paying interim dividend.


China Education Group (839 HK): Impressive 1H22 Result, Positive Takeaways from Call

<ul>
<li>The 42% collapse in share price 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> (CEG) seems to be overreaction to the speculated regulatory measures which we think many of them are counter-intuitive.</li>
<li>These measures center around the legality of Variable Interest Entity, ban on future M&amp;As, ownership of school assets and prohibition of increase in tuition fee at will.</li>
<li>Higher education, unlike after school tutoring, supports government policy, lightens governments' financial pressure and enhances common prosperity; and CEG remains the best play on this angle. </li>
</ul>


The 42% collapse in share price of China Education Group (839 HK) (CEG) seems to be overreaction to the speculated regulatory measures which we think many of them are counter-intuitive.
These measures center around the legality of Variable Interest Entity, ban on future M&amp;As, ownership of school assets and prohibition of increase in tuition fee at will.
Higher education, unlike after school tutoring, supports government policy, lightens governments' financial pressure and enhances common prosperity; and CEG remains the best play on this angle. 


China Education Group (839 HK): Further Regulatory Headwinds?

China

China YuHua Education operates private education from kindergarten to university in China.

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China Yuhua Education (6169 HK)

China Education Group (839 HK): Sustaining Growth Trajectory

Higher enrollment and tuition, further capacity growth, good progress in overseas education and light capex are developments that will potentially...

Osbert Tang, CFA

Hope Education (1765 HK): More than Just Hopes

The beaten-down stock has a good enrollment quota growth in China and encouraging overseas student recruitment result. Lower capex and removal of...

Osbert Tang, CFA

China Education Group (839 HK): Further Evidences for Underlying Health

Solid growth in approved top-up degree quota brightens CEG's outlook. Even with share price spike, it still trades on cheap 7.1x PER for FY22, with...

Osbert Tang, CFA

China Education Group (839 HK): Impressive 1H22 Result, Positive Takeaways from Call

CEG's 1H22 result is not only impressive by itself, but also clears the market's concerns on policy impacts. Guidances for 2H22 suggest good upside...

Osbert Tang, CFA

China Education Group (839 HK): Further Regulatory Headwinds?

Regulatory speculations have beaten down CEG but may concerns are counter-intuitive and share price has over-reacted. Private participation in...

Osbert Tang, CFA

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