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 27.8% growth in net profit affirmed its solid fundamentals and minimal exposure to regulatory risks. We also welcome its resumption of dividends.</li>
<li>Management expects profitability will be driven by the 48% new student enrollment growth, potential for tuition increase and global education segment recovery. Consensus forecasts are currently too conservative.</li>
<li>Weaker 2H FY22 profit is due to higher depreciation and finance costs but will be absorbed with higher enrollment. Capex will be light and we also like its deleveraging move. </li>
</ul>



China Education Group (839 HK)'s 27.8% growth in net profit affirmed its solid fundamentals and minimal exposure to regulatory risks. We also welcome its resumption of dividends.
Management expects profitability will be driven by the 48% new student enrollment growth, potential for tuition increase and global education segment recovery. Consensus forecasts are currently too conservative.
Weaker 2H FY22 profit is due to higher depreciation and finance costs but will be absorbed with higher enrollment. Capex will be light and we also like its deleveraging move. 


China Education Group (839 HK): Shining Through

<ul>
<li>Positive response 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>'s placement indicated a good return of investor appetite to the sector. Its premium multiples stay well justified even after recent rally. </li>
<li>The HK$1.6bn proceeds will reduce gearing to 29.2% (including contract liabilities) from 41.7% with minimal dilution. Narrowing in valuation gap against asking price of targets means more M&amp;A potential. </li>
<li>More funding for expansion of existing campuses, increase in accommodation and the set up of COVID-19 related curriculum will allow CEG to realise higher revenue per student.</li>
</ul>


Positive response of China Education Group (839 HK)'s placement indicated a good return of investor appetite to the sector. Its premium multiples stay well justified even after recent rally. 
The HK$1.6bn proceeds will reduce gearing to 29.2% (including contract liabilities) from 41.7% with minimal dilution. Narrowing in valuation gap against asking price of targets means more M&amp;A potential. 
More funding for expansion of existing campuses, increase in accommodation and the set up of COVID-19 related curriculum will allow CEG to realise higher revenue per student.


China Education Group (839 HK): Solidifying Investment Thesis After Placement

<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

<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

Thematic (Sector/Industry)

<ul>
<li>The announcement of "Draft for Comments on the Regulations on the Management of off-campus Training" has led to a 43.6% rebound of the education sector from the 2024 trough.</li>
<li>The "Draft" has cleared regulatory worries on after-school tutoring of high school students and non-academic subjects. For higher education space, we like <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>. </li>
<li>
<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; Techn (9901 HK)</a>, <a href="https://www.smartkarma.com/entities/tal-education-group" target="_blank" data-smartkarma-citation="entities:1124:1" rel="noopener">TAL Education (TAL US),</a> and <a href="https://www.smartkarma.com/entities/gaotu-techedu-inc" target="_blank" data-smartkarma-citation="entities:28069:1" rel="noopener">Gaotu Techedu (GOTU US)</a> are the most direct beneficiaries of the "Draft".</li>
</ul>


The announcement of "Draft for Comments on the Regulations on the Management of off-campus Training" has led to a 43.6% rebound of the education sector from the 2024 trough.
The "Draft" has cleared regulatory worries on after-school tutoring of high school students and non-academic subjects. For higher education space, we like China East Education (667 HK). 

New Oriental Education &amp; Techn (9901 HK), TAL Education (TAL US), and Gaotu Techedu (GOTU US) are the most direct beneficiaries of the "Draft".


China Private Education: Trigger for the Sharp Rebound, and What Follows......

China

Edvantage Group Holdings Ltd is a private higher education group. The Company operates private, higher education institutions located in China and Australia. Edvantage Group Holdings operates as a holding company.

Edvantage Group (382 HK)

China Education Group (839 HK): Shining Through

FY23 profit will be driven by a 48% new student enrollment growth, potential for tuition increase and global education segment recovery. The...

Osbert Tang, CFA

China Education Group (839 HK): Solidifying Investment Thesis After Placement

CEG's placement will reduce gearing to 29.2% (including contract liabilities) from 41.7%. Its M&A progress will also benefit from narrowing...

Osbert Tang, CFA

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

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

China Private Education: Trigger for the Sharp Rebound, and What Follows......

The "Draft for Comments" of regulations on after-school tutoring has supported the rebound of the education sector. China East Education, New...

Osbert Tang, CFA

China Education Group (839 HK): Shining Through

FY23 profit will be driven by a 48% new student enrollment growth, potential for tuition increase and global education segment recovery. The...

Osbert Tang, CFA

China Education Group (839 HK): Solidifying Investment Thesis After Placement

CEG's placement will reduce gearing to 29.2% (including contract liabilities) from 41.7%. Its M&A progress will also benefit from narrowing...

Osbert Tang, CFA

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

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

China Private Education: Trigger for the Sharp Rebound, and What Follows......

​The "Draft for Comments" of regulations on after-school tutoring has supported the rebound of the education sector. China East Education, New...

Osbert Tang, CFA

The "Draft for Comments" of regulations on after-school tutoring has supported the rebound of the education sector. China East Education, New...