HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<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-east-education-holdings" target="_blank" data-smartkarma-citation="entities:27843:1" rel="noopener">China East Education (667 HK)</a>'s 1H24 result is impressive with a 58% YoY increase in adjusted net profit. Good cost control is a key contributing factor. </li>
<li>Profitability has improved in all business segments. Its strategy to focus on higher-value courses has led to further improvement in annualised tuition per student. </li>
<li>The 1H24 result equals 68% of the full-year consensus, implying an upside in market expectations. Its net cash, at 35% of market capitalisation, is unmatched by peers.</li>
</ul>



China East Education (667 HK)'s 1H24 result is impressive with a 58% YoY increase in adjusted net profit. Good cost control is a key contributing factor. 
Profitability has improved in all business segments. Its strategy to focus on higher-value courses has led to further improvement in annualised tuition per student. 
The 1H24 result equals 68% of the full-year consensus, implying an upside in market expectations. Its net cash, at 35% of market capitalisation, is unmatched by peers.


China East Education (667 HK): Rock Solid Improvements

Asia Pac IPO & Placement Research, China biotech, Aequitas Research

Ke Yan, CFA, FRM

Asia Pac IPO & Placement Research, China biotech

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.

Quantitative Analysis

<ul>
<li>We analyze the monthly Hong Kong Connect flows with our data engine.</li>
<li>We tabulate the top stocks by inflows, outflows, and holding by mainland investors.</li>
<li>We highlight inflows into CCB, Alibaba, China Mobile, ICBC, ABC.</li>
</ul>


We analyze the monthly Hong Kong Connect flows with our data engine.
We tabulate the top stocks by inflows, outflows, and holding by mainland investors.
We highlight inflows into CCB, Alibaba, China Mobile, ICBC, ABC.


Hong Kong Connect Flows (December): $10.7bn Inflows Led by Banks

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?

Hong Kong

Hope Education Group Co, Ltd. offers educational services. The Company provides educational training, knowledge point sharing, activities arrangement, and other services. Hope Education Group offers its services throughout China.

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Hope Education Group Co Ltd (1765 HK)

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 East Education (667 HK): Rock Solid Improvements

China East Education’s FY24 earnings of Rmb512.6m (+88%) beat the consensus forecast (Rmb419.5m) by a significant margin. Its 2H24 adjusted net...

Osbert Tang, CFA

Hong Kong Connect Flows (December): $10.7bn Inflows Led by Banks

We analyzed the Hong Kong Connect Scheme for December and highlighted flows for CCB, Alibaba, China Mobile, ICBC, ABC, Meituan, Kuaishou, Wuxi...

Ke Yan, CFA, FRM

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

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

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 East Education (667 HK): Rock Solid Improvements

China East Education’s FY24 earnings of Rmb512.6m (+88%) beat the consensus forecast (Rmb419.5m) by a significant margin. Its 2H24 adjusted net...

Osbert Tang, CFA

Hong Kong Connect Flows (December): $10.7bn Inflows Led by Banks

We analyzed the Hong Kong Connect Scheme for December and highlighted flows for CCB, Alibaba, China Mobile, ICBC, ABC, Meituan, Kuaishou, Wuxi...

Ke Yan, CFA, FRM

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

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,...