China Kepei (1890 HK) Margin Higher than Expected, Huge Increase in 20/21 Student Enrollment September 18, 2020 88

PSR Recommendation: BUY Status: Upgraded
Target Price: HKDHKD 7.67

Investment Summary

1H20 interim result overview The company’s 1H20 revenue was RMB 419 million (+16.7% yoy), GP was RMB 309 million (+22.6% yoy), NP was RMB 321 million (+31% yoy). The NP of Harbin Institute of Petroleum acquired in 1H20 was consolidated in the company’s interim report as other income. Hence, the NP of the company was higher than the GP for the interim. If the revenue and cost of Harbin Institute of Petroleum is simulated to be consolidated into the company’s interim report, the company’s revenue/GP for 1H20 were RMB 478 million/RMB 353 million, with corresponding GPM at 73.8%. This simulated GPM was far higher than our previous expectation, which has fully demonstrated the company’s strong post investment management and resource integration abilities. Further, as affected the COVID epidemic, the boarding fee refund of the company’s self-built schools/ Harbin Institute of Petroleum were RMB 26 million/ RMB 6.1 million respectively. The 1H20 revenue would be RMB 445 million (+23.8% yoy) if excluding the effect of the boarding fee refund. Although the company saw a huge decrease in boarding fee in 1H20, but it was partly offset by the decrease in administrative expense ratio as the suspension of classes in 1H20 due to COVID. The administrative expense ratio was down by 2.8 ppt yoy.

Enrollment in 20/21 academic year has increased significantly yoy, we are expecting a huge organic growth in future The number of enrollment for the company’s undergraduate program in 20/21 academic year increased by 38% yoy to 11,213, ranking 1st in Guangdong Province. Within it, the number of enrollment for “junior college graduate into undergraduate program” was 3600, up by 11 times yoy. Since there are still no graduates from “junior college graduate into undergraduate program” yet, hence, the number of newly admitted students will be the net increase in the number of undergraduate students for 20/21 academic year. Further, the number of enrollment for junior college program in 20/21 academic year is 6572, up by 143% yoy. In terms of Adult college program and secondary vocational education program, the number of enrollment also increased year on year. As for tuition fee, the undergraduate fees of Guangdong Polytechnic College and Harbin Institute of Petroleum in 20/21 academic year will increase by 12% and 10% respectively yoy. The tuition fee of junior college program, Adult college program and secondary vocational education program will also increase by 5%,10% and 10% respectively. On the other hand, the company will expand 52,000 and 60,000 beds for boarding purposes respectively this year and next, laying a solid foundation for future enrollment expansion.

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