Investment Summary

China New Higher Education Group (CNHEG) is one of the leading private higher education operators in China. We expect it will be the front runner in the future, because four schools out of seven of them are located in the provinces that have 1) a moderate increase in the number of candidates for Gaokao, and 2) below average gross higher education enrollment rate. They will surely enjoy universal higher education in China, and escape from the headache of low birth rate. We predict the earnings growth to be 37/14.3% in 2018/19F, assuming PE 28x (Average forward PE 20x with 40% premium). With 12.2% upside, we initiate “Accumulate” recommendation.

Business Overview

CNHEG is currently six operating schools in Yunnan, Guizhou, Xinjiang, Heilongjiang, Hubei, Henan, and one under construction in Gansu. It has positioned as an employment-oriented school and focused on applied sciences in order to make their students more equipped to the job market, then enhancing their reputation to attract talented high school graduates and eventually replicating a scalable business model across regions. This strategy has made Yunnan and Guizhou schools a remarkable employment rate, 98.1%, in 2017.