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PREPARED AND PUBLISHED BY NON-US BROKER-DEALER(S): BNP PARIBAS SECURITIES (ASIA) LTD THIS MATERIAL HAS BEEN APPROVED FOR U.S. DISTRIBUTION. ANALYST CERTIFICATION AND IMPORTANT DISCLOSURES CAN BE FOUND AT APPENDIX ON PAGE 45

Ample room for growth

n Strong demand for quality education in China

Rising disposable incomes have increased demand for quality

education and overseas education opportunities in China. As per

Frost & Sullivan, per capita expenditure on fundamental education

saw a 17.8% CAGR in 2009-13. Maple Leaf’s tuition was cheaper

than the average for the top 5 international schools in the 2013-14

school year, according to Frost & Sullivan, and we see it as well

placed to benefit from rising demand from the middle income group.

n Dual-diploma and dual-curriculum

Maple Leaf’s high school education, which enables its graduates to

get a fully accredited British Columbia high school diploma along with

a Chinese high school diploma, is considered one of its core

offerings. In the 2013-14 school year, more than 95% of its high

school graduates got into universities/colleges globally and about

51% into the world’s top 100 universities, as per company estimates.

n Clear expansion plan

Maple Leaf had 40 schools in nine cities as at 1-Sep-14. It is

developing 12 new schools and expects operations to commence

over the next three years. The company plans to expand, in part,

through an asset-light approach by partnering with third parties,

particularly local governments, to increase its returns on investments.

n We initiate coverage with BUY

Based on our FY15/16E revenue growth of 17.2% and 15.0%, we

forecast that adjusted net profit will grow 12.0% to RMB144.5m in

FY15 and 17.2% to RMB169.5m in FY16. We initiate coverage with a

BUY rating. Our HKD2.91 target price is based on a 20x CY15E P/E.

Maple Leaf adjusted net profit and y-y growth

Sources: China Maple Leaf Educational Systems; BNP Paribas estimates

(10) %

0 %

10 %

20 %

30 %

0

50,000

100,000

150,000

200,000

250,000

FY12 FY13 FY14 FY15E FY16E FY17E

(%)(HKD '000) Adjusted net profit (LHS)

Adjusted net profit growth (RHS)

16 JANUARY 2015

INITIATION 45 HONG KONG HONG KONG / CONSUMER SERVICES

CHINA MAPLE LEAF EDUCATIONAL 1317 HK

BUY

TARGET PRICE HKD2.91

CLOSE HKD2.12

UP/DOWNSIDE +37.3%

HKD CHANGE IN TP %

HOW WE DIFFER FROM CONSENSUS MARKET RECS

TARGET PRICE (%) (1.4) POSITIVE 1

EPS 2015 (%) (3.3) NEUTRAL -

EPS 2016 (%) (0.6) NEGATIVE -

Emily Lee [email protected]

+852 2825 1862

Our research is available on Thomson One, Bloomberg, TheMarkets.com, Factset and on http://eqresearch.bnpparibas.com/index. Please contact your salesperson for

authorisation. Please see the important notice on the back page.

KEY STOCK DATA

YE Aug (RMB 1000) 2014A 2015E 2016E 2017E

Revenue 540,269 633,412 728,372 838,260

Rec. net profit 129,007 144,547 169,452 202,110

Recurring EPS (RMB) 0.16 0.11 0.13 0.15

EPS growth (%) 20.9 (34.0) 17.2 19.3

Recurring P/E (x) 10.3 15.6 13.3 11.2

Dividend yield (%) 0.0 0.0 0.0 0.0

EV/EBITDA (x) 6.9 5.1 4.5 3.5

Price/book (x) 2.8 1.7 1.5 1.4

Net debt/Equity (%) (68.2) (85.0) (83.4) (83.8)

ROE (%) 29.2 16.4 12.3 12.9

Share price performance 1 Month 3 Month 12 Month

Absolute (%) 1.0 - -

Relative to country (%) (4.4) - -

Next results May 2015

Mkt cap (USD m) 365

3m avg daily turnover (USD m) 3.9

Free float (%) 23

Major shareholder LIANG SHERMAN SHU (54%)

12m high/low (HKD) 2.95/1.92

3m historic vol. (%) 82.9

ADR ticker -

ADR closing price (USD) -

Issued shares (1000) 1,334,000

Sources: Bloomberg consensus; BNP Paribas estimates

(38)

(28)

(18)

(8)

1.73

2.23

2.73

3.23

Nov-14

(%)(HKD)China Maple Leaf Educational

Rel to MSCI Hong Kong

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China Maple Leaf Educational 1317 HK Emily Lee

2 BNP PARIBAS 16 JANUARY 2015

Investment thesis

The international school market in China is growing rapidly. Total revenues increased at about a 23.0% CAGR in 2009-13 to RMB18.4b, compared to about an 18.4% CAGR for China’s fundamental education industry, according to Frost & Sullivan.

Maple Leaf had market shares of approximately 9.0% in the highly fragmented international high-school market in China and about 7.6% in the international school market in China in terms of student enrolments at the end of the 2013-14 school year, according to Frost & Sullivan. As it targets families with higher-than-average incomes, its revenue and profitability could grow due to: 1) tuition increases; 2) student enrolment increases; 3) utilisation ramp-up at existing schools; and 4) more new schools. We expect average tuition per student to increase by 2.9-3.8% and student enrolments to grow by 11.2-14.1% in FY15-17, with the utilisation rate at 61.7% in FY17 and net addition of two schools in Yiwu in FY15, and 10 schools in Pinghu, Yiwu and Xi’an in FY16-17.

Catalyst

Key driver of demand for international schools is the rising income of Chinese households and growing expatriate population in China combined with their ability to afford higher tuition fees. Favourable government policies towards private education could provide opportunities for setting up additional schools.

Risks to our call

Rising competition may lead to market share loss. Ability to increase tuition fee levels. Failure to renew existing China/BC certifications and failure to obtain other necessary approvals, licences and permits from the government pose downside risks to our call.

Company background Key assumptions

China Maple Leaf Educational Systems Limited is a Chinese

international school operator. It operates seven high schools,

10 middle schools, nine elementary schools, 12 preschools and

two foreign-national schools across nine cities in China.

2015E 2016E 2017E

Student enrolment increase (%) 14.1 11.2 12.5

Average tuition fee increase (%) 3.6 3.8 2.9

Utilisation (%) 59.1 62.4 61.7

New schools 2 6 4

Source: BNP Paribas estimates

Principal activities (FY15 revenue split on our estimates) Earnings sensitivity

----- Base ----- ----- Bear ----- ----- Bull -----

FY15E FY16E FY15E FY16E FY15E FY16E

Student enrolment 15,423 17,156 13,881 15,440 16,965 18,871

Change (%)

(10.0) (10.0) 10.0 10.0

Average tuition fee (RMB)

35,767 37,142 32,190 33,428 39,344 40,857

Change (%)

(10.0) (10.0) 10.0 10.0

Teaching staff cost (RMB m)

213.5 244.0 234.8 268.4 192.1 219.6

Change (%)

10.0 10.0 (10.0) (10.0)

Gross profit (RMB ’000s) 280,602 324,854 154,445 179,383 417,791 483,068

Change (%)

(45.0) (44.8) 48.9 48.7

Key executives Source: BNP Paribas estimates

Age Joined Title

Shu Liang Sherman Jen

60 2007 Chairman and Co-CEO

Zhenwan Liu 58 2014 Vice Chairman, President and Co-CEO

Jingxia Zhang 57 2008 Senior Vice President and Co-CFO

James William Beeke

64 2014 Vice President and BC programme Superintendent

http://www.mapleleafschools.com

A 10% increase in student enrolment, all else being equal,

is likely to increase our FY15/16E gross profit by

19.7%/19.6%.

A 10% increase in average tuition fee, all else being

equal, is likely to increase our FY15/16E gross profit by

19.7%/19.6%.

A 10% increase in staff cost, all else being equal, is likely

to decrease our FY15/16E gross profit by 7.6%/7.5%.

High school tuition (52.52%)

Middle school tuition (15.66%)

Elementary school tuition(12.14%)Foreign national school tuition(2.53%)Preschool tuition (4.24%)

Textbooks (4.79%)

Summer and winter camp(4.04%)Other educational services(4.08%)

http://www.mapleleafschools.com/

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Investment thesis

The international school market in China is growing rapidly. Total revenues grew at

about a 23.0% CAGR in 2009-13 to RMB18.4b, compared to about an 18.4% CAGR

for China’s fundamental education industry, according to Frost & Sullivan. The swift

growth is primarily driven by increasing disposable incomes in China, emphasising

the importance parents place on high quality and overseas education opportunities.

Frost & Sullivan expects China’s international school market to grow rapidly at an

11.8% CAGR over 2013-17, reaching about 244,600 students enrolled in 2017,

compared to an 8.6% CAGR for total student enrolments in private fundamental

education in the same period.

Maple Leaf was the first-ever offshore high school certified by the Ministry of

Education of British Columbia, Canada, or BCMOE, offering dual-curriculum and

dual-diploma education. Over the past 19 years, Maple Leaf has built up a strong

and reputable brand name in providing a comprehensive education that immerses

students in Chinese and Western cultures. Maple Leaf had market shares of

approximately 9.0% in the highly fragmented international high school market in

China and about 7.6% in the international school market in China in terms of student

enrolments at the end of the 2013-14 school year, according to Frost & Sullivan. As it

targets families with higher-than-average income, its revenue and profitability could

grow due to 1) tuition increases, 2) student enrolment increases, 3) utilisation ramp-

up at existing schools and 4) more new schools. We expect average tuition per

student to increase by 2.9-3.8% and student enrolments to grow by 11.2-14.1% in

FY15-17, with the utilisation rate at 61.7% in FY17 and net addition of two schools in

Yiwu in FY15, and 10 schools in Pinghu, Yiwu and Xi’an in FY16-17.

Key market drivers of the international school market

§ Rising income of Chinese households – The per capita disposable income of Chinese urban households has increased rapidly along with continuous economic

growth and urbanisation in China. This is a key driver of demand for international

schools as more families are able to afford higher tuition fees.

§ Higher demand for a bilingual and multicultural education – Chinese parents’ increasing desire to send their children abroad to gain broader cultural exposure

and improve future employment prospects has increased the demand for English-

language education in China.

§ Favourable government policies – In the Summary of the 2013 National Conference on Education, the central government stated its intention to abolish

all discriminatory policies against private education and stated that private

investment will be encouraged to develop the country’s education system. Some

local governments have implemented favourable policies, such as granting free

land and providing financial support, to attract well-known private schools to set

up local branches and develop campuses.

Also in 2013, the Chinese government announced that it would relax its “one-

child policy” to stimulate birth rates by allowing families to have two children if one

of the parents was an only-child. We expect demand for high-quality K-12 (also

known as fundamental education) private education in China to continue to

increase.

§ Growing expatriate population in China – The number of expatriates has been growing as more people migrate to China for business opportunities. Expatriate

demand for international schools will increase, given their preference to receive

an education similar to that in their home countries. According to the Ministry of

Human Resources and Social Security of China, the number of expats with work

permits reached 329,000 in 2013, up from 252,000 in 2006, representing a 3.9%

CAGR in 2006-13. Excluding workers from Hong Kong, Macau and Taiwan,

foreign workers grew from 180,000 in 2006 to 244,000 in 2013, a 4.4% CAGR.

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EXHIBIT 1: Number of expatriates in China with work permits

Source: Ministry of Human Resources and Social Security

Maple Leaf’s competitive strength

§ Maple Leaf is China’s largest international school operator, with a market share of approximately 7.6% of student enrolments in the 2013-14 school year, compared

to the second-largest operator’s market share of about 2.7%, according to Frost &

Sullivan. In the international high school market alone, Maple Leaf had a market

share of about 9.0% in terms of student enrolments in the 2013-14 school year.

EXHIBIT 2: Top five international schools in China, ranked by student enrolment in the 2013-14 school year

Ranking School operator Student enrolment 2013-14

school year Market share 2013/2014

school year

(persons) (%)

1 Maple Leaf 13,513 7.6

2 Nord Anglia 4,859 2.7

3 Shanghai United 4,737 2.7

4 Dulwich 4,162 2.3

5 Yew Chung 3,866 2.2

Note: The data in the above table is based on statistics as of 31 August 2014. The ranking is based on student enrolments, which only takes into account the international sections of each school operator and excludes domestic or national sections which are beyond the definition of international schools set out in the industry analysis section. Source: Frost & Sullivan

EXHIBIT 3: Top five international high schools in China, ranked by student enrolments in the 2013-14 school year

Ranking School operator Student enrolment 2013-14

school year Market share 2013-14

school year

(persons) (%)

1 Maple Leaf 5,836 9.0

2 Dulwich 1,476 2.3

3 NIT Education 1,462 2.2

4 Huamei 1,432 2.2

5 Shanghai American 1,425 2.2

Note: The data in the above table is based on statistics as of 31 August 2014. The ranking is based on student enrolments, which only takes into account the international sections of each school operator and excludes domestic or national sections which are beyond the definition of international schools set out in the industry analysis section. Source: Frost & Sullivan

§ Its dual-curriculum and dual-diploma high school education, enabling its graduates to receive a fully-accredited British Columbia (BC) high school diploma

and a Chinese high school diploma, is considered a core component.

§ Over 95% of its high school graduates were admitted to universities and colleges around the world and about 51% of them were admitted into the world’s top 100

universities (as ranked by Quacquarelli Symonds) in the 2013-14 school year,

0

50

100

150

200

250

300

350

400

2006 2007 2008 2009 2010 2011 2012 2013

Foreign Worker Worker from HK, Macau and TaiwanPersons ('000)



based on the company’s estimates. This track record could help to boost its brand

and confidence among parents and students.

§ Maple Leaf had 40 schools as at 1 September 2014, covering preschool, elementary, middle, high school and foreign national schools. This

comprehensive academic offering allows Maple Leaf to retain students through

their school education, providing it with high visibility on future enrolments and

revenue. For each of the 2010-11, 2011-12 and 2012-13 school years, over 70%

of total graduates from its elementary schools enrolled in its middle schools, and

over 70% of total graduates from its middle schools enrolled in its high schools.

§ Since 2012, the company has implemented an asset-light expansion plan in cooperation with local partners, in particular local governments, to develop new

schools. Under the recent cooperation agreement with local governments, the

latter are responsible for acquiring campus sites and building school premises,

which could enable the company to achieve a higher return on capital.

§ Its relatively lower tuition fees compared to the top-five international schools could attract more middle income families.

EXHIBIT 4: Annual tuition fee comparison

Private fundamental education in China in

2013(1)

Average of Top 5 international schools in China in 2014-15

school year(1)

Maple Leaf 2014-15 school year

(2)

(RMB) (RMB) (RMB)

Preschools 2,650 112,060 12,000-21,600

Elementary schools 2,920 141,131 18,000-33,000

Middle Schools 4,350 156,262 21,000-43,000

High Schools 7,670 167,920 42,400-71,500

Sources: Frost & Sullivan; China Maple Leaf Educational Systems

EXHIBIT 5: Average annual tuition fees of the Top 5 international schools in China in the 2014-15 school year

Ranking School operator Preschools Elementary schools Middle schools High school

(RMB) (RMB) (RMB) (RMB)

1 Maple Leaf 16,500 20,456 26,410 49,000

2 Nord Anglia 145,200 206,000 224,400 241,500

3 Shanghai United 95,500 93,000 109,800 147,000

4 Dulwich 155,800 193,600 212,600 186,700

5 Yew Chung 147,300 192,600 208,100 215,400

Note: The data in the above table is based on statistics as at 31 August 2014. The tuition fees do not include incidental expenses, and are applicable to the 2014-15 school year. The figures are calculated by the arithmetical average of each individual branch, sector or grade as announced by school operators. Maple Leaf’s foreign national schools are not included. Source: Frost & Sullivan Report

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Entry barriers for the Chinese education industry

China’s fundamental education industry has relatively high entry barriers, particularly

compulsory education which is closely regulated by the Ministry of Education (MOE).

China’s school operators are required to obtain and maintain a series of approvals,

licences and permits by relevant government authorities and comply with specific

registration and filing requirements to operate education services.

The establishment of a school requires approvals under China’s Education law. The

establishment of a private school requires further approvals under the Law for

Promoting Private Education and the Implementation Rules for the Law for

Promoting Private Education.

The international school market in general has higher entry barriers, according to

Frost & Sullivan. Firstly, Chinese-foreign cooperation in operating schools or training

programmes is specifically governed by the Sino-Foreign Regulation in accordance

with the Education Law, the Occupational Education Law of the PRC and the Law for

Promoting Private Education of the PRC, and the Implementing Rules for the

Regulations on Operating PRC-foreign Schools. Any China-foreign cooperation

school and cooperation programme shall be approved by the relevant education

authorities and get the Permit for Chinese-foreign Cooperation in Operating School.

The company believes the ability to offer a dual-diploma curriculum is one of the

toughest entry barriers for school operators in the industry. The complexity comes

from the challenges of designing a curriculum that can offer courses that are

accredited by foreign and Chinese education systems and course credits duly

certified by the respective governments’ educational authorities. To establish a dual-

diploma curriculum, the approvals of both governments are required as each

education system has specific requirements and arriving at a mutual agreement is a

complicated process. Also, the school operator’s ability to design a curriculum that

can combine the requirements of both systems and minimise course overlaps for

students is a key challenge. The school operator is required to recruit and maintain

qualified teaching staff from both systems and managing two teaching teams with

very different teaching methodologies and lifestyles is considered very challenging.

Other entry barriers include the large initial investment required to construct the

campus and school facilities and the availability of land, relevant facilities and

qualified teaching staff.

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Proven business model with a full range of K-12 education

Maple Leaf was the largest international school operator in China in terms of student

enrolments at the end of the 2010-11, 2011-12, 2012-13 and 2013-14 school years,

according to the Frost & Sullivan Report. It operates all of its schools under the

Maple Leaf brand and offers a bilingual K-12 education with competitive tuition fees.

Well-established bilingual, dual-curriculum and dual-diploma education

One of the key competitive advantages of its business is a dual-curriculum and dual-

diploma high school education that enables graduates of its China- and BC-certified

high schools to receive both a fully-accredited BC high school diploma and a

Chinese high school diploma. Its Dalian Maple Leaf High School was the first-ever

offshore high school certified by the Ministry of Education of British Columbia,

Canada.

High level of acceptance to universities and colleges around the world

Based on the company’s estimates, over 95% of its high school graduates were

admitted to universities and colleges around the world in the 2013-14 school year. In

the same year, based on the company’s estimates, about 51% of its high school

graduates were admitted to the World Top 100 Universities (as ranked by

Quacquarelli Symonds). Over 50 universities and colleges around the world have a

memorandum of understanding with Maple Leaf to facilitate the admissions process

for its high school graduates, which, the company believes, acknowledges the

academic performance and English capacity of its students.

Extensive school network, with 40 schools in nine cities

Maple Leaf has a 19-year operating track record and has grown to 40 schools across

nine cities in China as at 1 September 2014.

EXHIBIT 6: School breakdown

FY11 FY12 FY13 31-May-14 1-Sep-14

High schools 4 5 5 7 7

Middle schools 3 3 6 7 10

Elementary schools 2 2 4 6 9

Preschools 10 10 11 11 12

Foreign national schools 2 2 2 2 2

Total 21 22 28 33 40

Source: China Maple Leaf Educational Systems



EXHIBIT 7: Geographical location of Maple Leaf's network

Sources: China Maple Leaf Educational Systems; BNP Paribas

About 70% of its high school teachers are BC-certified

As at 31 May 2014, the company had a team of about 1,272 teachers, including

about 306 BC-certified teachers, about 834 China-certified teachers and about 56

English as a Second Language (ESL) teachers. Most of its teachers are full-time

teachers and part-time teachers accounted for 3% of the total number of teachers in

the nine months ended 31 May 2014. Its BC-certified teachers accounted for about

70% of its high school teachers as at 31 May 2014. All of its BC-accredited courses

are taught in English by BC-certified teachers and all of its BC-certified teachers are

certified by the BCMOE. All of its courses required for China diplomas are taught by

China-certified teachers in Chinese. Its China-certified teachers obtain certification

with relevant local educational authorities after passing applicable tests. Its ESL

teachers hold ESL certificates and train its students to improve their proficiency in

English.



EXHIBIT 8: Teacher breakdown

30-Jun-11 30-Jun-12 30-Jun-13 31-May-14

(nos) (nos) (nos) (nos)

High, middle and elementary schools and foreign school

BC-certified teachers 211 246 266 306

PRC-certified teachers 404 528 651 834

ESL teachers 23 28 49 56

Subtotal 638 802 966 1,196

Preschool

Teachers qualified in childcare 61 61 70 76

Total 699 863 1,036 1,272


Marketing and student recruitment

Historically, Maple Leaf’s student enrolment has been driven by word-of-mouth

referrals. However, it has increasingly employed a wider range of marketing and

recruiting methods to attract students and increase enrolment.

As at 31 May 2014, it had more than nine on-campus student recruitment offices with

a total of 51 recruiting staff. Each recruiting staff must go through a marketing

training session and is responsible for answering inquiries made by interested

parents and holding promotional events to attract new students.

Also, it carries out marketing activities through third-party recruiting agents to

introduce its schools to local parents in various geographic regions. As of 31 May

2014, it had engaged approximately 119 third-party individual agents and 36 third-

party recruiting offices located throughout China. It plans to utilise new and targeted

marketing techniques such as Internet marketing, targeting potential students and

their parents and offering individual informational meetings.

EXHIBIT 9: Recruitment fair


High schools

The company operated seven high schools in Dalian, Wuhan, Tianjin, Chongqing,

Zhenjiang, Luoyang and Shanghai as of 1 September 2014, and had a total of about

5,836 students in its high schools as at 30 June 2014.

Its high schools are open to Chinese citizens and foreign nationals and offer a dual-

curriculum programme. As at 30 June 2014, its high school students were primarily

Chinese nationals, with the remaining approximately 3.6% being international

students. Under the BC education system, the subjects required are English,

mathematics, sciences, humanities, arts, physical education, applied skills and

college-bound electives such as applied sciences, acting, psychology, economics,

marketing and accounting. The courses required by the Chinese educational



authorities are Chinese language and social studies (Chinese history, geography and

politics).

Maple Leaf has over 50 memoranda of understanding in place with different

universities and colleges abroad to facilitate the admissions process for its high

school graduates. The company believes each memorandum serves to help the

partner university/college appreciate its solid bi-cultural academic programme and

high level of students’ English language proficiency and facilitate the early

admissions process by encouraging early contacts between its high school students

and the university/college.

Beginning in the 2009-10 school year, Maple Leaf introduced single-gender

education programmes at its Dalian high school and middle school. This segregation

based on gender was intended to improve the academic performance of its students

by accounting for the subtleties of gender differences in learning, and designing

tailored learning opportunities for male and female students. We believe this

relatively new and unique school format in China could help Maple Leaf to build its

brand as a pioneer in education innovation and attract the interest of more Chinese

parents, especially parents of female students, as it could be a solution to

behavioural difficulties for both male and female students in unisex schools.

Middle and elementary schools

Maple Leaf operated 10 middle schools in Tianjin, Wuhan, Dalian, Chongqing,

Zhenjiang, Luoyang, Ordos, Pingdingshan and Shanghai, and nine elementary

schools in Tianjin, Dalian, Wuhan, Zhenjiang, Luoyang, Ordos, Pingdingshan and

Chongqing as of 1 September 2014. As at 30 June 2014, its middle schools had

about 2,941 students and its elementary schools about 2,731 students.

Its middle and elementary schools, which can only offer Chinese curricula under the

country’s laws and regulations, offer extensive English training and a bilingual

learning environment to students, preparing them for its English-intensive high

school programme. It has designed supplementary course materials to infuse

Western educational philosophy into standard Chinese course offerings. It has

developed its own model for ESL teaching at the elementary and middle school

levels and its own textbooks and learning materials, Maple Leaf English and Maple

Leaf English for Young Learners.

For each of the school years of 2010-11, 2011-12 and 2012-13, over 70% of its total

elementary school graduates enrolled in its middle school, and over 70% of its total

middle school graduates enrolled in its high schools.

Preschools

Maple Leaf had 12 preschools, 10 of which are located in Dalian and the remaining

two in Ordos and Pingdingshan as of 1 September 2014. As at 30 June 2014, its

preschools had about 1,784 students. Its preschools focus on developing an active

and healthy learning environment to help develop an inquisitive mind and emphasise

fun in the process of learning.

Foreign national schools

Its foreign national schools, open only to foreign nationals, cover the K-9 class levels

and are certified by the BCMOE. Maple Leaf has a foreign national school each in

Dalian and Wuhan with a combined total of about 221 students as of 30 June 2014.

It offers an all-English, Canadian education programme and all teachers and

principals are BC-certified educators. Its foreign schools are designed to enrich and

support the development of students from international families living in China and

students who are about to migrate to a foreign country.

Double-digit growth in total student enrolments expected in FY14-16E

Overall student enrolments grew to about 13,513 as at 30 June 2014 from about

9,120 as at the end of the 2010-11 school year.



EXHIBIT 10: Maple Leaf student enrolments, capacity and utilisation rate of each school

Student enrolment (1) 30-Jun-11 30-Jun-12 30-Jun-13 30-Jun-14

Student capacity as of 30-Jun-14

School utilisation rate as of 30-Jun-14

(3)

(nos.) (nos.) (nos.) (nos.) (nos.) (%)

Dalian

High school 2,723 2,914 2,651(4) 2,479 3,500 70.8

Change (%)

7.0 (9.0) (6.5)

Middle school 1,211 1,248 1,308 1,182 1,300 90.9

Change (%)

3.1 4.8 (9.8)

Elementary school 840 884 899 928 850 109.2

Change (%)

5.2 1.7 3.2

Preschools (5) 1,613 1,702 1,704 1,582 1,800 79.6

Change (%)

5.5 0.1 (7.2)

Foreign national school 187 184 171 191 240 87.9

Change (%) (1.6) (7.1) 11.7

Total 6,574 6,932 6,733 6,362

Change (%)

5.4 (2.9) (5.5)

Wuhan

High school 1,106 1,246 1,332 1,392 1,500 92.8

Change (%)

12.7 6.9 4.5

Middle school 110 312 540 653 1,500 43.5

Change (%)

183.6 73.1 20.9

Elementary school - - - 501 400 125.3

Change (%)

- - -

Foreign national school 28 26 25 30 100 30.0

Change (%) (7.1) (3.8) 20.0

Total 1,244 1,584 1,897 2,576

Change (%)

27.3 19.8 35.8

Tianjin

High school 519 683 839 1,087 1,500 72.5

Change (%)

31.6 22.8 29.6

Middle school 278 401 512 602 750 80.3

Change (%)

44.2 27.7 17.6

Elementary school 350 508 684 844 750 112.5

Change (%) 45.1 34.6 23.4

Total 1,147 1,592 2,035 2,533

Change (%)

38.8 27.8 24.5

Chongqing

High school 155 331 349 434 1,000 43.4

Change (%)

113.5 5.4 24.4

Middle school - - 116 211 500 42.2

Change (%) - - 81.9

Total 155 331 465 645

Change (%)

113.5 40.5 38.7

(Continued on next page)



EXHIBIT 10: Maple Leaf student enrolments, capacity and utilisation rate of each school (cont’d)

Student enrolment (1) 30-Jun-11 30-Jun-12 30-Jun-13 30-Jun-14

Student capacity as of 30-Jun-14

School utilisation rate as of 30-Jun-14

(3)

(nos.) (nos.) (nos.) (nos.) (nos.) (%)

Zhenjiang

High school - 70 163 256 400 64.0

Change (%)

- 132.9 57.1

Middle school - - - 101 200 50.5

Change (%)

- - -

Elementary school - - - 94 200 47.0

Change (%) - - -

Total - 70 163 451

Change (%)

- 132.9 176.7

Luoyang

High school - - - 30 550 5.5

Change (%)

- - -

Middle school - - 104 145 1,150 12.6

Change (%)

- - 39.4

Elementary school - - 100 243 1,000 24.3

Change (%) - - 143.0

Total - - 204 418

Change (%) 104.9

Shanghai

High school - - - 158 2,000 7.9

Ordos

Middle school - - 36 47 500 9.4

Change (%) 30.6

Elementary school - - 43 121 500 24.2

Change (%) 181.4

Preschools (5) - - 121 202 300 67.3

Change (%) 66.9

Total

200 370

Change (%) 85.0%

Total 9,120 10,509 11,697 13,513 22,490 60.1

Change (%)

15.2 11.3 15.5

1 Though its financial year ends on 31 August of each year, the company’s school year ends on 30 June each year.

2 Except for its preschool and foreign schools, all of its schools are boarding schools. For these boarding schools, the student capacity is based on the approximate number of beds in its dormitories. For its foreign schools, the student capacity is based on the approximate number of desks in its classrooms. For its preschools, the student capacity is based on the number of beds used for naps in the schools, according to Maple Leaf’s calculations.

3 As at 30 June 2014, the school utilisation rates of its elementary schools in Dalian, Wuhan and Tianjin exceeded 100%. This was due to the fact that some of its students in those schools were commuter students who did not live on-campus and thus did not occupy beds in the dormitories of those schools.

4 Student enrolments at Dalian Maple Leaf High School decreased significantly in the school year ended 30 June 2013 because it had a large number of high school graduates in the 2011-12 school year. This was primarily due to the fact that starting from the 2011-12 school year, it began to encourage its high school students to complete the BC curriculum in three years by offering summer courses to students in the foundations and bridging programmes.

5 The company had 10 preschools in Dalian and one in Ordos as at 30 June 2014. The student enrolment in each of its preschools is subject to monthly fluctuations.


Other educational services

Maple Leaf also provides summer and winter camps in partnership with foreign

universities and colleges that tailor programmes and activities to improve students’

English communication skills, graduation consulting centres that assist high school

students with their university and college applications and The Orca programme

which provides top students with personalised college counselling services to help

them obtain offers and financial aid from top universities.



Ample room for growth

As discussed before, we believe there are four main growth drivers for Maple Leaf:

1) increases in tuition; 2) increases in student enrolments; 3) utilisation ramp-up at

existing schools; and 4) more new schools.

Student enrolment

Student enrolments generally depend on the school’s reputation, the quality of

teachers, the capacity of the schools and tuition they charge. The company believes

that its dual curriculum and bilingual form of education will enable it to steadily

increase the number of students enrolled as more students in China seek a pathway

to universities and colleges overseas. The company believes its relatively lower

tuition fee has also been a key factor parents have considered when deciding to

enrol children in Maple Leaf schools.

Tuition fee increase

Maple Leaf’s ability to raise tuition charges at its schools is one of the most

significant factors affecting its profitability. The company plans to raise tuition, subject

to applicable government approvals, in geographical regions where it has created a

strong presence and built sufficient student and parent loyalty.

EXHIBIT 11: Maple Leaf tuition

Tuition per student 2012/13 2013/14 2014/15

(RMB) (RMB) (RMB)

High schools 42,400-49,000 42,400-71,500 42,400-71,500

Middle schools 21,000-31,000 21,000-38,000 21,000-43,000

Elementary schools 18,000-28,000 18,000-33,000 18,000-33,000

Preschools 14,400-21,600 14,400-21,600 12,000-21,600

Foreign national schools USD13,000-15,600 USD13,000-15,600 USD13,000-15,600

Note: For its high schools, middle schools and elementary schools, tuition included a boarding fee ranging between RMB900 and RMB4,000 for the 2012-13 school year and RMB900 and RMB5,000 for the 2013-14 school year and RMB900 to RMB5,000 for the 2014-15 school year. Except for its foreign schools, the tuition ranges set forth in this table do not apply to foreign students. Source: China Maple Leaf Educational Systems

Utilisation rate

The utilisation rate of Maple Leaf’s school facilities is a key driver of revenue growth

and gross margin resulting from the large amount of fixed costs it incurs to operate a

school. Utilisation rates are generally higher at its more established facilities than at

the facilities in newly entered markets. With regards to the schools it currently

operates that have a low utilisation rate, it aims to concentrate on increasing student

enrolments and the utilisation rate and not to seek to expand capacity at these

schools in the short to medium term.

Expanding existing campuses and new schools

On some of its existing campuses it reserves undeveloped land on which it plans to

construct various types of facilities to increase the capacity of these campuses. For

its recently established campuses, the company usually divides the sites into two

areas and only completes construction on one area upon school opening. The

company will consider commencing construction on the other area after student

enrolments increase in these campuses.

The company aims to explore opportunities in new geographic locations and

gradually expand its operations to more cities in China and abroad. Once it enters a

new geographic market, it will first focus on establishing a high school, and gradually

build out one or more sets of middle and elementary schools to provide a pipeline of

students for its high school.

The company plans to carry out part of its future expansion under an asset-light

approach by partnering third parties, in particular local governments, to develop new

schools. In most of the company’s recent cooperation agreements, the third parties



will contribute the land use rights to the campus sites and the school premises and,

in return, Maple Leaf will pay an administration fee or rent based on the school’s

disposable profit or on the number of students enrolled.

EXHIBIT 12: Information about its new campuses under development (as of 1 September 2014)

School Status Estimated school commencement date Estimated maximum capacity for students

(nos.)

Pinghu, Zhejiang Province

Middle school Under planning 1-Sep-16 800

Elementary school Under planning 1-Sep-16 900

Preschool Under planning 1-Sep-16 300

Yiwu, Zhejiang Province

High school and foreign national school Under planning 1-Sep-15 1,400-1,800

Middle school, elementary school and preschool Under planning 1-Sep-16 1,800

Xi'an, Shanxi Province

High school, middle school, elementary school and foreign national school

Under planning 1-Sep-16 – 1-Sep-17 3,500-4,000


In addition to expanding its existing campuses and developing new campuses, the

company also plan to make use of the vacant premises on some of its existing

campuses by opening new schools. The company opened a middle school on its

Shanghai campus and an elementary school on its Chongqing campus in September

2014, which the company believes will help to increase the utilisation rates of these

two campuses.



Financial analysis

Revenue

Maple Leaf’s revenue increased 14.0% y-y in FY13 to RMB471.2m and 14.7% y-y in

FY14 to RMB540.3m. Tuition fees contributed 86.2% of the total turnover in FY13

and 86.4% in FY14. The increase was primarily the result of revenue from tuition

fees increasing by 10.6% y-y to RMB406.0m in FY13 and 15.0% y-y to RMB466.7m

in FY14, driven by an increase in student enrolments. Student enrolments increased

by 11.3% y-y to approximately 11,697 as at 30 June 2013 and by 15.5% y-y to

approximately 13,513 as at 30 June 2014.

As Maple Leaf’s tuition is relatively low compared with other peers, and its new

school locations are in more developed regions, we expect average tuition to

increase and revenue to outgrow student numbers in the next few years.

EXHIBIT 13: Revenue breakdown


EXHIBIT 14: Revenue breakdown (% of total)


Cost of revenue

Maple Leaf’s staff costs consist of salaries and benefits paid to its teachers and other

teaching staff. This component accounted for 58.5% of the total cost of revenue in

FY13 and 60.8% in FY14, increasing 17.0% in FY13 and 18.0% in FY14.

Depreciation and amortisation relate to the depreciation of property, plant and

equipment and the amortisation of books for lease. Other training expenses relate to

travel expenses and other expenses incurred in connection with its summer and

winter camps. Other costs include the daily expenses of operating its schools and

facilities.

0

100,000

200,000

300,000

400,000

500,000

600,000

FY11 FY12 FY13 FY14

(RMB'000)

High school tuition Middle school tuition

Elementary school tuition Foreign national school tuition

Preschool tuition Textbooks

Summer and winter camp Other educational services

0

20

40

60

80

100

FY11 FY12 FY13 FY14

(%)

High school tuition Middle school tuition

Elementary school tuition Foreign national school tuition

Preschool tuition Textbooks

Summer and winter camp Other educational services



EXHIBIT 15: Cost of revenue breakdown

Year-end 31 Aug FY11 FY12 FY13 FY14

(RMB ’000) (RMB ’000) (RMB ’000) (RMB ’000)

Teaching staff costs 115,400 134,348 157,207 185,436

Depreciation & amortisation 25,479 26,154 29,577 34,509

Other training expenses 14,114 17,643 25,757 25,120

Other costs 34,694 44,197 56,210 60,083

Total cost of revenue 189,687 222,342 268,751 305,148

% of total cost of revenue

Teaching staff costs (%) 60.8 60.4 58.5 60.8

Depreciation & amortisation (%) 13.4 11.8 11.0 11.3

Other training expenses (%) 7.4 7.9 9.6 8.2

Other costs (%) 18.3 19.9 20.9 19.7


Gross margin

Maple Leaf’s gross margin decreased to 43.0% in FY13, from 46.2% in FY12,

primarily due to the opening of new schools in Luoyang and Ordos during the

period – the utilisation rate of new schools is typically lower during the initial years of

operation. Gross margin picked up by 0.5ppt to 43.5% in FY14, which we believe

was mainly due to the improved utilisation rate due to the ramp up of new schools.

A significant component of Maple Leaf’s cost of sales is compensation to its teachers,

including PRC-certified, BC-certified, ESL teachers and other teaching staff, which

accounted for 58.5% of total cost of sales in FY13 and 60.8% in FY14. A higher

utilisation rate of its facilities and a decrease in its teacher to student ratio, due to an

increase in student enrolments at its existing schools, will be positive to gross margin.

Another factor affecting gross margin would be the rate of increase in tuition vs

compensation to teachers. Since the majority of the new schools in the pipeline are

elementary and middle schools, we believe Maple Leaf would need to hire fewer

higher paid BC-certified teachers, which could help to control cost increases and

provide upside to gross margin.

EXHIBIT 16: Gross margin trend


45.2 46.2

43.0 43.5

30

35

40

45

50

FY11 FY12 FY13 FY14

(%)

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Operating expenses

Commercials and expenditure on producing, printing and distributing advertising and

promotional materials make up the majority of the marketing expenses.

Administrative expenses primarily consist of salaries and benefits for general and

administrative staff, depreciation of office buildings and equipment, travel expenses,

taxes, employee share options and certain professional expenses. The company

expects administrative expenses to increase as it intends to hire additional

administrative personnel to support growth.

Adjusted EBITDA

The table below shows the adjusted EBITDA trend excluding the effect from fair

value changes from convertible preferred shares and warrants, share-based

payments, depreciation and amortisation and interest income. Adjusted EBITDA

grew 14.8% to RMB163.8m in FY12, 2.1% to RMB167.3m in FY13 and 3.3% to

RMB172.8m in FY14. The slowdown in growth was primarily due to the opening of

new schools in Luoyang and Ordos during the period and the fact that the utilisation

rate of new schools is typically lower during the initial years of operation. As a large

proportion of Maple Leaf’s costs are fixed, we believe EBITDA margin will improve

due to operational leverage as Maple Leaf’s student enrolments rise.

EXHIBIT 17: Adjusted EBITDA

Year-end 31 Aug FY11 FY12 FY13 FY14

(RMB ’000) (RMB ’000) (RMB ’000) (RMB ’000)

PBT (30,655) 103,121 41,225 48,436

Interest expense 14,952 15,234 15,554 15,493

Depreciation and amortisation 32,062 33,137 38,332 44,027

EBITDA 16,359 151,492 95,111 107,956

Share based payments 353 72 31 8,560

Change in fair value on redeemable convertible preferred shares

104,040 10,440 63,720 91,812

Loss on modification of redeemable preferred shares - - - 3,286

Change in fair value on warrants 21,960 1,785 8,410 3,695

Gain on cancellation of warrants - - - (42,510)

Adjusted EBITDA 142,712 163,789 167,272 172,799


Taxation

Maple Leaf’s China operations are generally subject to China’s enterprise income tax

rate of 25% on its taxable income. According to the Implementation Rules for the

Law for Promoting Private Education, private schools for which the sponsors do not

require reasonable returns are eligible to enjoy the same preferential tax treatment

as public schools. Maple Leaf’s adjusted effective tax rate, excluding the impact of

fair value changes on preferred shares and warrants, has been stable at 7-8%.

Cash flow

Cash flow from operating activities is generated primarily from tuition fees, summer

and winter camp fees and graduation consulting service fees, all of which are

typically paid before the respective services are rendered and are booked under

deferred revenue. It will be recognised as revenue proportionately over the relevant

period in which students attend the applicable programme. The company typically

has cash outflows for operating activities throughout the school year.

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EXHIBIT 18: Net cash generated from operating activities


Dividend policy

The company has never declared or paid any dividends on its ordinary shares. It has

no plan at present to declare and pay any dividends on its shares, as it intends to

retain the available funds and any future earnings to operate and expand its

business.

0

50

100

150

200

250

300

350

400

450

FY11 FY12 FY13 FY14E FY15E FY16E FY17E

(RMB m)



Valuation

We initiate coverage on China Maple Leaf with a BUY recommendation. Our target

price of HKD2.91 is based on 20x CY15E P/E, implying a 1.1x PEG based on our

projected net profit CAGR of 18.3% in FY15-17E. The target multiple of 20x is largely

in line with the average consensus valuation of 18.5x for its closest peers, including

international school operators and educational service providers, and is also in line

with Nord Anglia’s PEG of 1.2x. We believe the slight valuation premium attached is

reasonable, given China Maple Leaf’s strong cash flow, steady earnings stream as

well as the rising demand of quality education by the Chinese middle income group,

leading to a visible turnover and earnings outlook.

Our target multiple assigned for Maple Leaf is slightly higher than the average of

16.3x CY15 consensus P/E for other peers providing educational services. We

believe the premium attached to Maple Leaf is reasonable given its high earnings

visibility, stable operating cash flow, as well as its revenue and earnings growth

potential.

Most of Maple Leaf’s peers are involved in education services and focus on tutoring

services. We believe Nord Anglia Education is the most relevant listed peer in terms

of business operations because they are both international school operators with the

ability to offer an internationally recognised diploma for their graduates.

EXHIBIT 19: Peer valuations

Company name BBG code Curr. Price Mkt cap ------ CY P/E ------ -----EV/EBITDA ----- -------- P/BV -------- -------- ROE -------- ------ Div. yield ------

'14E '15E '16E '14E '15E '16E '14E '15E '16E '14E '15E '16E '14E '15E '16E

(LC) (LC) (USD m) (x) (x) (x) (x) (x) (x) (x) (x) (x) (%) (%) (%) (%) (%) (%)

International school operator

China Maple Leaf Educational 1317 HK HKD 2.12 363 23.6 14.6 12.4 6.9 5.1 4.5 2.8 1.7 1.5 29.2 16.4 12.3 0.0 0.0 0.0

Nord Anglia Education Inc. NORD US USD 20.05 1,960 54.0 29.1 23.3 35.3 17.4 14.5 n.a. 7.8 5.8 n.a. 23.3 24.1 n.a. n.a. n.a.

Educational service provider

New Oriental Educatio-SP ADR EDU US USD 20.57 3,258 14.4 12.6 10.9 n.a. 10.3 8.3 4.0 2.6 2.1 22.9 20.4 19.8 0.0 0.0 0.0

TAL Education Group- ADR XRS US USD 27.97 2,206 32.5 25.3 17.9 n.a. 20.7 14.7 7.2 6.7 5.1 26.8 25.9 27.6 0.0 0.4 0.5

Xueda Education GR-Spon ADR XUE US USD 2.44 163 15.3 9.8 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Tarena International Inc.-ADR TEDU US USD 11.91 603 25.6 16.5 n.a. 38.0 23.3 13.7 2.8 2.5 2.0 13.1 16.4 18.8 n.a. n.a. n.a.

China Distance Education-ADR DL US USD 15.32 547 21.65 17.46 13.86 23.6 12.2 9.4 5.1 5.7 5.6 28.7 27.6 35.1 0.0 5.6 6.7

Simple average for educational service providers 21.9 16.3 14.2 30.8 16.6 11.5 4.8 4.4 3.7 22.9 22.6 25.3

Simple average for all peers

27.2 18.5 16.5 26.4 15.0 11.0 4.4 4.5 3.7 24.1 21.7 23.0

Note: Calendarised P/E for all companies. Prices as at 15-Jan-2015; Bloomberg consensus estimates for all companies except China Maple Leaf Educational Systems Sources: Companies; Bloomberg consensus; BNP Paribas estimates

While we believe Nord Anglia is the closest listed peer to Maple Leaf, their key

differences include 1) market presence, 2) market positioning and target market and

3) student composition. Nord Anglia Education has 31 international schools, located

in 13 countries (China, Europe, the Middle East, North America and Southeast Asia),

and educates over 20,000 students from preschool through to the end of secondary

education. Nord Anglia posted an adjusted EBITDA of USD128.2m in FY14 and the

company expects to record revenue of USD545m-555m and adjusted EBITDA of

USD144m-147m in FY15.

Based on Nord Anglia’s FY14 report, its China business contributed 52.1% to its

adjusted EBITDA in FY14, amounting to USD78.4m (RMB482.9m), which is 1.8x

higher than Maple Leaf’s RMB172.8m. While the number of students enrolled at

Nord Anglia China is substantially lower than Maple Leaf at 4,827 students, its

revenue per full-time equivalent students is much higher at USD34,300, due to its

premium positioning with a much higher tuition level and substantially larger number

of expatriates. In China, Nord Anglia’s total revenue in FY14 was USD165.6m and

adjusted EBITDA USD78.4m.

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Based on market consensus estimates, Nord Anglia is trading at 29.1x CY15 P/E.

Our target multiple of 20x for Maple Leaf represents a 31% discount to Nord Anglia’s

CY15 P/E, which we believe is justified by Maple Leaf’s smaller business scale,

lower profitability and concentration in China, although we expect more room for

Maple Leaf to grow as it targets the country’s rising middle class with more affordable

tuition fees.

EXHIBIT 20: Nord Anglia's income statement

FY11 FY12 FY13 FY14

(USD m) (USD m) (USD m) (USD m)

Revenue 225.2 274.4 323.7 474.6

COGS (105.0) (126.5) (147.6) (214.4)

Gross profit 120.2 147.9 176.1 260.2

Selling and administrative expenses (78.1) (84.6) (96.0) (137.4)

Depreciation (7.2) (9.9) (11.7) (23.4)

Amortization (2.8) (3.5) (5.7) (10.4)

Impairment of goodwill (16.7) (10.7) - -

Exceptional items (9.4) (12.5) (17.7) (100.2)

Operating profit 6.0 26.7 45.0 (11.2)

Finance income 10.1 2.0 2.3 2.0

Finance expense (51.7) (49.7) (51.3) (55.5)

PBT (35.6) (21.0) (4.0) (64.7)

Tax (12.5) (16.4) (19.3) (25.7)

Net profit (48.1) (37.4) (23.3) (90.4)

Adjusted EBITDA

PBT (35.6) (21.0) (4.0) (64.7)

Interest expense 41.6 47.7 49.0 53.5

Exceptional items 9.4 12.5 17.7 100.2

Impairment of goodwill 16.7 10.7 - -

Depreciation and Amortization 10.0 13.4 17.4 33.8

EBITDA 42.1 63.3 80.1 122.8

Share based payments 0.3 0.6 0.1 3.1

Adjusted EBITDA 42.4 63.9 80.2 125.9

Adjusted net profit (14.0) (4.4) (1.3) 23.6

Ratios (%)

GP margin 53.4 53.9 54.4 54.8

OP margin 2.7 9.7 13.9 (2.4)

EBITDA margin 18.8 23.3 24.8 26.5

PBT margin (15.8) (7.7) (1.2) (13.6)

Net margin (21.4) (13.6) (7.2) (19.0)

Adjusted net margin (6.2) (1.6) (0.4) 5.0

Source: Nord Anglia prospectus, annual report

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EXHIBIT 21: Nord Anglia’s FY14 revenue split

Source: Nord Anglia

EXHIBIT 22: Nord Anglia’s FY14 adjusted EBITDA split

Source: Nord Anglia

EXHIBIT 23: Nord Anglia's China regional snapshot

FY14

Number of schools (nos) 5

Full-time equivalent students (average for the period) 4,827

Capacity (no of students) 6,964

Utilisation (%) 69

Annual revenue/FTE (USD) 34,300

Source: Nord Anglia

China36.5%

Europe30.0%

Middle East/South East

Asia19.0%

North America14.5%

China52.1%

Europe17.3%

Middle East/South East

Asia14.7%

North America15.9%



Forecast and assumptions

Profit & loss analysis

We forecast revenue growth of 17.2% for FY15, 15.0% in FY16 and 15.1% for FY17,

or a CAGR of 15.0% in FY15-17, for Maple Leaf. We expect this to be driven by an

increase in total student enrolments of 14.1% in FY15, 11.2% in FY16 and 12.5% in

FY17, and an increase in average tuition fee of 3.6%, 3.8% and 2.9%, respectively.

We have also factored in the new schools that commenced operations on 1

September 2014 in Tianjian and Pingdingshan, the schools that plan to commence

operations in Yiwu, Zhejiang, on 1 September 2015, and the new schools that plan to

commence operations in Pinghu, Zhejiang, on 1 September 2016; we expect them to

contribute 3.1% of tuition fees in FY15, 4.9% in FY16 and 7.7% in FY17. We expect

the utilisation rate to increase to 61.7% on 30 June 2017, from 60.1% on 30 June

2014, as the new schools ramp up due to increased student enrolments.

Gross margin increased to 43.5% in FY14, from 43.0% in FY13, as we believe the

new schools opened in Luoyang and Ordos in FY13 ramped up student enrolments,

lifting utilisation rates. We expect gross margin to gradually improve to 44.8% in

FY17 as the utilisation rates of the new schools improve.

EXHIBIT 24: Income statement

Year ended 31 Aug FY11 FY12 FY13 FY14 FY15E FY16E FY17E

(RMB ’000) (RMB ’000) (RMB ’000) (RMB ’000) (RMB ’000) (RMB ’000) (RMB ’000)

Revenue 346,091 413,459 471,219 540,269 633,412 728,372 838,260

Cost of revenue (189,687) (222,342) (268,751) (305,148) (352,811) (403,518) (462,719)

Gross profit 156,404 191,117 202,468 235,121 280,602 324,854 375,540

Investment and other income 1,588 4,872 4,859 5,702 5,759 5,817 5,875

Other income, gains and losses 6,701 (1,633) 101 (246) (258) (271) (285)

Marketing expenses (13,861) (14,409) (20,886) (21,709) (24,070) (27,678) (31,854)

Administrative expenses (34,256) (47,934) (56,118) (74,528) (85,511) (100,515) (114,842)

Finance costs (14,952) (15,234) (15,554) (15,493) (13,088) (11,237) (7,827)

Other expenses (6,279) (1,433) (1,515) (24,128) (6,318) (6,381) (6,445)

Operating profit 95,345 115,346 113,355 104,719 157,116 184,588 220,163

Changes in fair value on redeemable convertible preferred shares (104,040) (10,440) (63,720) (91,812) - - -

Loss on modification of redeemable convertible preferred shares - - - (3,286) - - -

Change in fair value on warrants (21,960) (1,785) (8,410) (3,695) - - -

Gain on cancellation of warrants - - - 42,510 - - -

PBT (30,655) 103,121 41,225 48,436 157,116 184,588 220,163

Tax (7,575) (9,153) (8,043) (8,400) (12,569) (15,136) (18,053)

Net profit (38,230) 93,968 33,182 40,036 144,547 169,452 202,110

Adjusted net profit 88,123 106,265 105,343 129,007 144,547 169,452 202,110

Ratios (%)

GP margin 45.2 46.2 43.0 43.5 44.3 44.6 44.8

OP margin 27.5 27.9 24.1 19.4 24.8 25.3 26.3

Adjusted EBITDA margin 41.2 39.6 35.5 32.0 33.0 33.1 33.4

PBT margin (8.9) 24.9 8.7 9.0 24.8 25.3 26.3

Net margin (11.0) 22.7 7.0 7.4 22.8 23.3 24.1

Adjusted net margin 25.5 25.7 22.4 23.9 22.8 23.3 24.1

Effective tax rate 24.7 (8.9) (19.5) (17.3) (8.0) (8.2) (8.2)

Adjusted effective tax rate (7.9) (7.9) (7.1) (8.3) (8.0) (8.2) (8.2)

Growth (y-y %)

Turnover 19.5 14.0 14.7 17.2 15.0 15.1

Operating profit

21.0 (1.7) (7.6) 50.0 17.5 19.3

Adjusted EBITDA

14.8 2.1 3.3 20.9 15.4 16.2

PBT

n.a. (60.0) 17.5 224.4 17.5 19.3

Net profit

n.a. (64.7) 20.7 261.0 17.2 19.3

Adjusted net profit

20.6 (0.9) 22.5 12.0 17.2 19.3

Marketing expenses growth

4.0 45.0 3.9 10.9 15.0 15.1

Administrative expenses growth

39.9 17.1 32.8 14.7 17.5 14.3

Sources: China Maple Leaf Educational Systems (FY11-14); BNP Paribas estimates (FY15-17E)



Adjusted net margin (excluding the impact of fair value changes on redeemable

convertible preferred shares, warrants and share-based payments and one-off

professional fee) came in at 23.9% in FY14, compared to 22.4% in FY13 and 25.7%

in FY12. It bottomed in FY13 due to the impact of low utilisation rates at the new

schools. We expect adjusted net margin to improve to 24.1% in FY17, with utilisation

rates improving due to the ramp up at new schools.

We forecast adjusted earnings (excluding the effect of fair value changes on

preferred shares, which we have not included in our forecasts after FY14, and one-

off professional fees) to grow by 12.0% to RMB144.5m in FY15, by 17.2% to

RMB169.5m in FY16 and by 19.3% to RMB202.1m in FY17, implying an 18.3%

CAGR for FY15-17.

EXHIBIT 25: Adjusted EBITDA and net profit

Year ended 31 Aug FY11 FY12 FY13 FY14 FY15E FY16E FY17E


PBT (30,655) 103,121 41,225 48,436 157,116 184,588 220,163

Interest expense 14,952 15,234 15,554 15,493 13,088 11,237 7,827

Depreciation and Amortisation 32,062 33,137 38,332 44,027 38,638 45,159 51,972

EBITDA 16,359 151,492 95,111 107,956 208,842 240,984 279,962

Share based payments 353 72 31 8,560 - - -

Change in fair value on redeemable convertible preferred shares 104,040 10,440 63,720 91,812 - - -

Loss on modification of redeemable preferred shares - - - 3,286 - - -

Change in fair value on warrants 21,960 1,785 8,410 3,695 - - -

Gain on cancellation of warrants - - - (42,510) - - -

Adjusted EBITDA 142,712 163,789 167,272 172,799 208,842 240,984 279,962

(Loss) profit for the year/period (38,230) 93,968 33,182 40,036 144,547 169,452 202,110

Share-based payments 353 72 31 8,560 - - -


Loss on modification of redeemable preferred shares - - - 3,286 - - -



One off professional fee - - - 24,128 - - -

Adjusted net profit 88,123 106,265 105,343 129,007 144,547 169,452 202,110




EXHIBIT 26: Tuition fee and student enrolment forecasts

Year-end 31 Aug 2011 2012 2013 2014 2015E 2016E 2017E

Total tuition fee (RMB '000)

High schools 196,472 241,051 259,205 288,041 332,682 382,875 428,009

Middle schools 41,683 54,801 68,150 79,259 99,178 116,584 146,590

Elementary schools 25,612 31,349 37,851 59,779 76,869 87,575 105,752

Foreign national schools 18,207 16,377 14,376 14,877 16,045 21,404 25,073

Preschools 22,754 23,481 26,380 24,792 26,861 28,772 32,223

Total 304,728 367,059 405,962 466,748 551,636 637,210 737,648

Change (y-y %)

20.5 10.6 15.0 18.2 15.5 15.8

Tuition per student (RMB)

High schools 43,631 45,967 48,595 49,356 51,824 53,378 55,514

Middle schools 26,068 27,945 26,051 26,950 28,297 29,146 30,603


Foreign national schools (RMB/USD 6.16) 84,684 77,986 73,347 67,317 70,683 72,803 76,443

Preschools 14,107 13,796 14,455 13,919 14,175 14,458 14,747

Average Tuition 33,413 34,928 34,707 34,544 35,767 37,142 38,204

Tuition per student (y-y %)

High schools

5.4 5.7 1.6 5.0 3.0 4.0

Middle schools

7.2 (6.8) 3.4 5.0 3.0 5.0

Elementary schools

4.6 (2.6) -0.2 4.0 4.0 4.0

Preschools

(7.9) (5.9) -8.2 5.0 3.0 5.0


(2.2) 4.8 -3.7 2.0 2.0 2.0

Average tuition

4.5 (0.6) -0.5 3.6 3.8 2.9

Enrolment (as of 30 June)

High schools 4,503 5,244 5,334 5,836 6,420 7,173 7,710

Middle schools 1,599 1,961 2,616 2,941 3,505 4,000 4,790


Foreign national schools 215 210 196 221 227 294 328

Preschools 1,613 1,702 1,825 1,784 1,895 1,990 2,185

Total enrolment 9,120 10,509 11,697 13,513 15,423 17,156 19,308

Enrolment (y-y %)

High schools

16.5 1.7 9.4 10.0 11.7 7.5

Middle schools

22.6 33.4 12.4 19.2 14.1 19.8

Elementary schools

17.0 24.0 58.2 23.6 9.5 16.1


(2.3) (6.7) 12.8 2.7 29.5 11.6

Preschools

5.5 7.2 (2.2) 6.2 5.0 9.8

Total enrolment

15.2 11.3 15.5 14.1 11.2 12.5

* Tuition per student in 2011, 2012 and 2013 are BNP Paribas estimates based on the range of tuition fees given by Maple Leaf Sources: China Maple Leaf Educational Systems (FY11-14 enrolment); BNP Paribas estimates (FY15-17E)

Balance sheet analysis

Maple Leaf was in a net debt position (bank balances and cash minus bank

borrowings, redeemable convertible preferred shares and warrants) of RMB319.7m

in FY14. We expect it to be in a net cash position in FY15-17 as it increasingly

cooperates with third parties to build new schools, which will lower its capital

requirements.

The company had net current liabilities of RMB704.6m in FY12, RMB837.6m in FY13

and RMB391.7m in FY14. This was primarily due to amounts recognised as deferred

revenue, amounts recognised as other payables and bank borrowings and amounts



recognised as redeemable convertible preferred shares. Maple Leaf recognises

deferred revenue from tuition fees, textbook fees, among other things, received

before the start of the relevant semester. Tuition fees and textbook rental income

from all its schools, except preschools, are generally paid in advance at the

beginning of each school year and are initially recorded as deferred revenue. The

company records payment of tuition fees initially as a liability under deferred revenue

and recognises such amounts received as revenue proportionately over the relevant

period in which students attend the applicable programme. It recognises textbook

rental income as a liability until the end of the relevant school year. The deferred

revenue is typically less as of 31 May as a certain amount of tuition services have

already been rendered.

EXHIBIT 27: Balance sheet

As at 31 Aug FY11 FY12 FY13 FY14 FY15E FY16E FY17E


Non-current assets

PPE 882,953 961,387 1,177,025 1,218,897 1,401,324 1,582,225 1,769,257

Prepaid lease payments 162,733 167,546 196,589 191,715 202,664 215,598 221,934

Prepayment for purchase of property plant and equipment 2,118 2,118 2,118 2,118

Investment properties 20,412 19,558 18,704 17,850 16,996 16,142 15,288

Goodwill 3,980 1,982 1,982 1,982 1,982 1,982 1,982

Available for sale investments 4,418 3,177 3,493 - - - -

Books for lease 2,565 4,028 3,309 3,407 4,429 5,536 6,644

Deposits for construction of property and land use right 3,037 3,193 1,227 1,037 1,037 1,037 1,037

1,080,098 1,160,871 1,402,329 1,437,006 1,630,549 1,824,636 2,018,259

Current assets

Deposit, prepayments and other receivables 13,283 12,483 16,256 24,626 28,163 33,201 38,838

Available-for-sale investments - - - 161,741 161,741 161,741 161,741

Restricted bank deposits - - - 4,000 - - -

Bank balances and cash 234,903 297,036 409,303 380,332 1,138,472 1,228,524 1,332,591

248,186 309,519 425,559 570,699 1,328,376 1,423,466 1,533,170

Current liabilities

Deferred revenue 319,847 357,475 408,325 500,231 591,209 682,922 790,565

Other payables and accrued expenses 87,087 109,842 188,607 218,148 254,730 299,237 346,599

Amounts due to related parties 13,822 13,805 13,491 3,544 3,544 3,544 3,544

Income tax payable 10,205 14,873 17,541 16,959 18,655 20,520 22,572

Bank borrowings 233,500 170,000 215,000 223,500 199,833 168,244 98,384

Redeemable convertible preferred shares 307,260 317,700 381,420 - - - -

Warrants 28,620 30,405 38,815 - - - -

1,000,341 1,014,100 1,263,199 962,382 1,067,970 1,174,467 1,261,664

Net current liabilities (752,155) (704,581) (837,640) (391,683) 260,405 249,000 271,506

Total assets less current liabilities 327,943 456,290 564,689 1,045,323 1,890,955 2,073,635 2,289,765

Non-current liabilities

Deferred tax liabilities 4,572 9,057 14,347 19,171 20,130 21,136 22,193

Bank borrowings - - 60,000 - - - -

Redeemable convertible preferred shares - - - 476,518 476,518 476,518 476,518

Deposit received in respect of disposal of properties 30,000 60,000 70,000 80,000 96,667 108,889 121,852

Other non-current liabilities 3,300 3,000 2,700 2,400 2,400 2,400 2,400

37,872 72,057 147,047 578,089 595,714 608,943 622,963

Capital and reserves

Share capital 511 511 511 511 732 732 732

Reserves 289,560 383,722 417,131 466,723 1,294,508 1,463,960 1,666,070

290,071 384,233 417,642 467,234 1,295,241 1,464,692 1,66,803




Cash flow analysis

Maple Leaf generated stable operating cash flows in the past three years, primarily

from tuition fees, fees for summer and winter camps and graduation consulting

service fees, all of which are typically paid before the respective services are

rendered.

Net cash is used in investing activities, primarily attributable to purchases of property,

plant and equipment for the construction of additional school premises. Hence,

capex totalled 42.5% of revenue in FY13 and 20.5% in FY14. We expect this ratio to

remain relatively high at 35.1% in FY15, 31.2% in FY16 and 27.9% in FY17 as the

company will be building some of the new schools in Yiwu under the asset-heavy

model. But we expect the capex to sales ratio to decline over the years as it

increasingly cooperates with third parties to lower its capex.

As for financing cash flow, major components are interest expenses and finance

costs. We expect the need to raise additional debt will be limited as the company’s

increasing cooperation with third parties reduces its funding needs.

EXHIBIT 28: Cash flow statement

Year-end 31 Aug FY11 FY12 FY13 FY14 FY15E FY16E FY17E


PBT (30,655) 103,121 41,225 48,436 157,116 184,588 220,163

Finance costs 14,952 15,234 15,554 15,493 13,088 11,237 7,827

Interest income (379) (1,059) (960) (1,354) (3,758) (4,001) (4,001)

Exchange gain (730) 3 (185) 202 - - -

Depreciation of PPE 25,241 25,966 29,873 35,424 39,663 46,356 45,356

Depreciation of investment properties 854 854 854 854 854 854 854

Amortisation of books for lease 1,934 2,276 3,132 2,875 3,219 3,762 3,762

Release of prepaid lease payment 4,033 4,041 4,473 4,874 4,463 4,603 4,647

Gain on disposal of available-for-sale investments (689) (186) - - - - -

Impairment loss on available-for-sale investments 555 - - - - - -

Dividends from available for sales investments (184) (183) (144) (146) (158) (149) (151)

Loss on disposal of PPE 345 (53) (286) 22 - - -

Share based payments 353 72 31 8,560 - - -




Impairment loss on goodwill - 1,998 - - - - -

Operating cash flow before working cap 141,630 164,309 165,697 171,523 214,487 247,250 279,457

Decrease in deposits prepayment and other receivables 3,138 980 (3,089) (8,370) (3,493) (4,984) (5,616)

Increase in deferred revenue 74,656 37,628 50,850 91,906 90,978 91,713 107,643

Increase in other payables and accrued expenses 15,864 12,806 35,941 60,998 36,582 44,507 47,362

Cash from operations 235,288 215,723 249,399 316,057 338,553 378,486 428,847

Interest received 379 1,059 960 1,354 3,758 4,001 4,001

Income tax paid - - (85) (4,158) (9,915) (12,264) (14,945)

Net cash from operating activities 235,667 216,782 250,274 313,253 332,396 370,223 417,904

(continued on next page)



EXHIBIT 28: Cash flow statement (cont’d)

Year-end 31 Aug FY11 FY12 FY13 FY14 FY15E FY16E FY17E


Payments for PPE (130,066) (93,306) (200,135) (110,765) (222,313) (204,993) (202,213)

Prepaid lease payments paid (4,498) (9,034) (37,200) - (15,411) (15,371) (8,095)

Purchase of books for lease (2,182) (3,739) (2,413) (2,973) (4,241) (5,889) (5,889)

Dividends received from available-for-sale investments 184 183 144 146 158 154 159

Proceeds from disposal of PPE 239 150 437 85 224 365 329

Proceeds from disposal of available for sale investments 2,200 1,490 - 4,000 - - -

Deposit received in respect of disposal of properties 10,000 30,000 10,000 10,000 16,667 12,222 12,963

Refund of deposits for construction of property and land use right - - 1,966 190 - - -

Purchase of AFS investments

(158,000)

Payment for acquisition of Tianjian Taida Maple in 2008 (30,375) - - - - - -

Net cash used in investing activities (154,498) (74,256) (227,201) (265,317) (224,917) (213,512) (202,746)

Proceeds from bank borrowings 218,500 170,000 275,000 165,000 183,000 166,133 137,102

Repayment of bank borrowings (180,000) (233,500) (170,000) (216,500) (206,667) (197,722) (206,963)

Capital issues - - - - 687,460 - -

Interest paid (14,177) (16,879) (15,654) (15,441) (13,088) (11,237) (7,827)

Repayment to related parties (537)

(10000 - - -

Net cash from financing activities 23,786 (80,379) 89,346 (76,941) 650,705 (42,826) (77,687)

Increase in cash and cash equivalents 104,955 62,147 112,419 (29,005) 758,184 90,107 104,088

Cash and cash equivalents at beginning of the year 130,038 234,903 297,036 409,303 380,332 1,138,472 1,228,524

Effect of foreign exchange rate changes (90) (14) (152) 34 (44) (54) (21)

Cash and cash equivalents at the end of the year 234,903 297,036 409,303 380,332 1,138,472 1,228,524 1,332,591

Sources: China Maple Leaf Educational Systems (FY11-14); BNP Paribas estimates (FY15E-17E)

China Maple Leaf Educational 1317 HK

28

Industry analysis

Overview of the PRC education industry

Fundamental education in China includes three years of preschool, nine years of

compulsory education at elementary and middle school and three years of high

school, which is a prerequisite for admission to college and postgraduate studies.

Compulsory education is closely regulated by the

including the curriculum and tuition, while preschools and high schools operate with

a greater degree of flexibility. While most high schools in China offer their graduates

a Chinese high school diploma, a small number offer international diplomas such as

the International Baccalaureate (IB) diploma and Canadian, British and American

diplomas. Very few high schools provide their graduates the opportunity to obtain a

dual diploma and accreditation under the Chinese and international school systems.

EXHIBIT 29: Composition of China’s education system

Source: Frost & Sullivan Report

Market size and trends of China’s fundamental education industry

China’s fundamental education industry generated total revenues of about

RMB1,810.3b in 2013, a CAGR of about 18.4% from 2009. Government public

expenditure accounted for about 86.8% of total revenues generated by the country’s

fundamental education industry in 2013. Others would include funding provided to

private schools by investors, donations, fundraising and tuition, etc.

EXHIBIT 30: Total revenues generated by China’s fundamental education industry in 2009-13


0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2009 2010 2011

(RMB b)

2009-13 CAGR: 18.4%

BNP PARIBAS

Fundamental education in China includes three years of preschool, nine years of

compulsory education at elementary and middle school and three years of high

school, which is a prerequisite for admission to college and postgraduate studies.

tion is closely regulated by the Ministry of Education (MOE),

including the curriculum and tuition, while preschools and high schools operate with

a greater degree of flexibility. While most high schools in China offer their graduates

diploma, a small number offer international diplomas such as

the International Baccalaureate (IB) diploma and Canadian, British and American

diplomas. Very few high schools provide their graduates the opportunity to obtain a

under the Chinese and international school systems.

Composition of China’s education system

Market size and trends of China’s fundamental education industry

China’s fundamental education industry generated total revenues of about

RMB1,810.3b in 2013, a CAGR of about 18.4% from 2009. Government public

expenditure accounted for about 86.8% of total revenues generated by the country’s

ry in 2013. Others would include funding provided to

private schools by investors, donations, fundraising and tuition, etc.

Total revenues generated by China’s fundamental education

2011 2012 2013

13 CAGR: 18.4%

Emily Lee

16 JANUARY 2015

Master

高亮



According to the National Bureau of Statistics of China, the decrease in China’s birth

rate from about 1.8% in 1980 to about 1.2% in 2013, due to the one-child policy,

resulted in a decrease in the school-age population. The increase in total revenues

generated by the fundamental education industry over this period was primarily

driven by increasing per capita expenditure on fundamental education. According to

the Frost & Sullivan Report, per capita expenditure per annum on fundamental

education grew at about 17.8% CAGR from 2009-13 to about RMB1,330.4.

EXHIBIT 31: Per capita expenditure on fundamental education, 2009-13


Student enrolment in China’s fundamental education industry

According to the Frost & Sullivan Report, the number of students enrolled in

fundamental education in China reached about 201.3m in 2013, about a 2.3% drop

y-y.

EXHIBIT 32: Total student enrolment in fundamental education 2009-17E

Note: The data in the above diagram is based on statistics as at 31 August of each year Sources: National Bureau of Statistics of China; Frost & Sullivan Report

§ The preschool segment grew at about 10.0% CAGR from 2009-13 to about

38.9m students. This was primarily driven by the increase in the enrolment rate,

given the increasing awareness among parents of the value that a quality

preschool education can help students perform well in elementary school and

beyond.

§ The elementary school segment saw a decline of about 1.8% CAGR in 2009-13

to about 93.6m due to the overall decline in school-age population.

§ The middle school segment experienced a decline of about 4.9% CAGR in 2009-

13 to about 44.4m due to the overall decline in school-age population.

§ The high school segment’s student enrolments remained stable in 2009-13 at

about 24.4m.

0

200

400

600

800

1,000

1,200

1,400

2009 2010 2011 2012 2013

(RMB b)

2009-13 CAGR: 17.8%

0

50

100

150

200

250

2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E

(m persons) Preschool Elemetary Schools Middle Schools High Schools



Overview of China’s private education industry

Private education was first allowed in China in the early 1980s. Private schools have

a higher level of operational independence as they do not operate directly under the

administration of the government unlike public schools. This allows them to have

broader and more diverse curricula and greater funding flexibility.

Market size and trends of China’s private fundamental education industry

China’s private fundamental education industry generated total revenues of about

RMB136.9b in 2013, increasing at a 27.4% CAGR in 2009-13, according to Frost &

Sullivan. The faster growth rate compared to China’s overall fundamental education

industry is primarily due to parents’ and students’ rising preference for private

schools, which resulted in increased enrolments at private schools and increased

revenues from tuition fees and private investments.

EXHIBIT 33: Total revenue generated by China’s private fundamental education industry in 2009-13


Per student expenditure on private fundamental education increased significantly

during 2009-13 at a CAGR of about 37.2%, 16.0%, 14.7% and 11.6% respectively for

preschools, elementary schools, middle schools and high schools.

EXHIBIT 34: Per student expenditure on private fundamental education, 2009-13


According to the Frost & Sullivan Report, the number of students enrolled in private

fundamental education in China rose about 4.8% y-y to 32.9m in 2013, despite a

decrease in overall student enrolments. Driven by favourable government policies for

private schools and an increasing recognition among parents of the value of private

schools, the number of students enrolled in private schools is expected to increase to

about 5.8m, or about 8.6% CAGR in 2013-17. Frost & Sullivan also expects the

0

20

40

60

80

100

120

140

160

2009 2010 2011 2012 2013

(RMB b)

2009-13 CAGR: 27.4%

0

2,000

4,000

6,000

8,000

10,000

12,000

2009 2010 2011 2012 2013

(RMB) Preschools Elementary schools

Middle schools High schools



penetration rate of private schools in the overall fundamental education system to

rise to about 21.9% in 2017, from about 16.3% in 2013.

EXHIBIT 35: Penetration of private schools in overall fundamental education based on student enrolments


The private preschool segment, the largest segment of the private K-12 education

based on student enrolments, grew at about 15.5% CAGR in 2009-13 to about

20.2m, primarily due to a significant shortage of public preschools and relatively

simple administrative requirements and funding sources from China’s government.

This segment had a penetration rate of about 51.9% in 2013.

Student enrolments in the private elementary school segment grew to about 6.0m in

2013, at a 4.5% CAGR in 2009-13, primarily driven by increasing disposable income

in China and the recognition of the value of private schools in early education. This

segment had a penetration rate of about 6.4% in 2013.

Student enrolments in the private middle school segment remained stable at 4.3m,

representing a CAGR of about -0.1% in 2009-13. This segment had a penetration

rate of about 9.7% in 2013.

Student enrolments in private high school grew to about 2.4m in 2013, at about 0.6%

CAGR in 2009-13. This segment had a penetration rate of about 9.8% in 2013.

EXHIBIT 36: Total private fundamental education student enrolments, 2009-17E

Sources: National Bureau of Statistics of China; Frost & Sullivan Report

0 20 40 60 80 100

2009

2013

2017E

(%)

Private fundamental education Public fundamental education

0

5

10

15

20

25

30

35

40

45

50

2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E

(m persons) Preschools Elementary schools Middle schools High schools



China’s international school market

International schools are defined as schools that provide fundamental education with

a set of foreign curricula or an integrated curriculum involving Chinese and foreign

curricula. They are broadly separated into two categories:

1 International schools for foreign students only that offer foreign curricula,

including the International Baccalaureate, A-Level, Advanced Placement, and

official Canadian and Australian curricula; and

2 International schools that cater to Chinese and foreign students, which usually

offer both Chinese and foreign curricula.

In 2013, over 90% of the international schools in China were private schools,

according to the Frost & Sullivan Report. They mainly comprise offshore branches

established by foreign school operators, or joint establishments between foreign

education providers and Chinese domestic schools. International private schools that

offer foreign curricula usually charge significantly higher tuition fees than local private

schools.

Market size and trends of international schools in China

China’s international school market generated total revenues of about RMB18.4b in

2013, up about 23.0% CAGR from 2009. The rapid growth was primarily driven by

rising per student tuition fees per annum and increasing student enrolments in the

international school market. The rapid growth rate was mainly due to tuition fee

increases.

EXHIBIT 37: Total revenues of international school market


Student enrolments in China’s international school market

The total number of students enrolled in international schools reached about 156,500

in 2013, rising at about 18.6% CAGR during 2009-13. Of the 156,500 students

enrolled in 2013, 100,600 were enrolled in international schools that admit Chinese

and foreign students.

0

2

4

6

8

10

12

14

16

18

20

2009 2010 2011 2012 2013

(RMB b)

2009-2013 CAGR: 23.0%



EXHIBIT 38: Total student enrolment in international schools

Note: The data in the above diagram is based on statistics as at 31 August of each year Source: Frost & Sullivan Report

Competitive landscape

The international school market is fragmented in China with hundreds of school

operators. The top-five international schools comprised about 17.5% of the market in

2013-14 in terms of student enrolments.

EXHIBIT 39: China’s top five international schools, ranked by student enrolments in the 2013-14 school year

Ranking School operator Student enrolments

in 2013-14 school year Market share

2013-14 school year

(persons) (%)

1 Maple Leaf 13,513 7.6

2 Nord Anglia 4,859 2.7

3 Shanghai United 4,737 2.7

4 Dulwich 4,162 2.3

5 Yew Chung 3,866 2.2

Note: The data in the above table is based on statistics as at 31 August 2014. The ranking is based on student enrolment, which only takes into account the international sections of each school operator and excludes domestic or national sections which are beyond the definition of international schools. Source: Frost & Sullivan Report

According to the Frost & Sullivan Report, the total number of students enrolled in

international high schools reached approximately 65,005 in the 2013-14 school year.

The top 5 international high school operators, in aggregate, comprised about 17.9%

market share in the 2013-14 school year in terms of student enrolments, and Maple

Leaf was the largest player with a market share of approximately 9.0%.

EXHIBIT 40: Top 5 international high schools in China, ranked by student enrolments in the 2013-14 school year

Ranking School operator Student enrolment

2013-14 school year Market share

2013-14 school year

(persons) (%)

1 Maple Leaf 5,836 9.0

2 Dulwich 1,476 2.3

3 NIT Education 1,462 2.2

4 Huamei 1,432 2.2

5 Shanghai American 1,425 2.2

Note: The data in the above table is based on statistics as at 31 August 2014. The ranking is based on student enrolment, which only takes into account the international sections of each school operator and excludes domestic or national sections which are beyond the definition of international schools. Source: Frost & Sullivan Report

0

50

100

150

200

250

300

2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E

('000)

Total student enrollment at international school

Total student enrollment at international school (excluding schools for foreigners only)



International schools generally charge higher tuition fees than local private schools,

and hence most of them are located in cities with populations that have relatively

higher annual disposable incomes. Beijing, Shanghai and Guangzhou are the three

largest cities in the international school market, followed by emerging cities such as

Dalian, Chongqing, Tianjin and Wuhan. The average tuition fees charged by the top-

five international schools in China in the 2014-15 school year were about

RMB112,060 for preschools, RMB141,131 for elementary schools, RMB156,262 for

middle schools and RMB167,920 for high schools.

EXHIBIT 41: Average annual tuition fees of the Top 5 international schools in China in the 2014-15 school year

Ranking School operator Preschools Elementary schools Middle schools High school

(RMB) (RMB) (RMB) (RMB)

1 Maple Leaf 16,500 20,456 26,410 49,000

2 Nord Anglia 145,200 206,000 224,400 241,500

3 Shanghai United 95,500 93,000 109,800 147,000

4 Dulwich 155,800 193,600 212,600 186,700

5 Yew Chung 147,300 192,600 208,100 215,400

Note: The data in the above table is based on statistics as at 31 August 2014. The tuition fees do not include incidental expenses, and are applicable to the 2014-15 school year. The figures are calculated by the arithmetical average of each individual branch, sector or grade as announced by school operators. Maple Leaf’s foreign national schools are not included. Source: Frost and Sullivan Report



Company profile

EXHIBIT 42: Members of the Board of Directors

Name Age Position Role and responsibility Date of appointment

as director Date of joining Maple Leaf

Shu Liang Sherman Jen 60 Executive Director, Chairman of the Board and Co-CEO

Overseeing management, business and strategy Jun-07 18-May-94

Zhenwan Liu 58 Executive Director, Vice Chairman of the Board, President and Co-CEO

General operation, strategic planning and business direction

Jun-14(1) 10-Mar-14

Jingxia Zhang 57 Executive Director, Senior Vice President and Co-CFO

Overseeing financial and school operations Mar-08 10-Apr-95

James William Beeke 64 Executive Director, Vice President and BC programme Superintendent

Overseeing overall school management and the BC programme

Apr-14 25-Apr-14(2)

Howard Robert Balloch 63 Non-Executive Director Supervising the overall management and strategic planning of the group

Mar-08 12-Mar-08

Peter Humphrey Owen 67 Independent non-Executive Director

Chairman of the Remuneration Committee, and member of the Nomination and Audit committees, supervising and providing independent judgment to the Board

Jun-14(1)

Chak Kei Jack Wong 42 Independent non-Executive Director

Member of Audit, Remuneration and Nomination committees, supervising and providing independent judgement to the Board

Jun-14(1)

Lap Tat Arthur Wong 54 Independent non-Executive Director

Chairman of the Audit Committee Jun-14(1)

(1) Effective from the listing date. (2) Mr. James William Beeke previously worked for Maple Leaf from 2005 to 2009. He was a director from 12 March 2008 to 20 January 2010, and was reappointed on 25 April 2014. Sources: China Maple Leaf Educational Systems; BNP Paribas

Executive Directors

Shu Liang Sherman Jen (任書良任書良任書良任書良), aged 60, is the company’s founder. Mr. Jen was appointed executive director in June 2014, and is responsible for the overall

business and strategy of the group, including the introduction of the dual-diploma

school model. He has been chairman of the Board of Directors since 2007, and co-

chief executive officer (“Co-CEO”) since March 2014. He has been president of

Dalian Maple Leaf International School since 1995, chairman of Dalian Maple Leaf

Educational Group Ltd since 2003, and a director of Maple Leaf Educational

Systems Ltd since 1992, Tech Global Investment Ltd since 2007, Hong Kong Maple

Leaf Educational Systems Ltd since 2009 and Beipeng Software since 2011.

Mr. Jen has more than 19 years of experience in the education industry. In 2004, he

was selected as one of the most influential figures in the private education industry in

China by sohu.com. In 2005, he received the Outstanding Chinese Entrepreneur

Award from the Overseas Chinese Affairs Office of the State Council of China. In

2011, he was honoured as one of the ‘Top Ten Figures of our Time’ by a group of

media organisations and industry associations. In 2013, he received the Governor

General’s Medallion from David Johnston, Governor General of Canada, for his

contributions to international education. Mr. Jen has not held any directorship role in

any other listed company in the last three years.

Mr. Jen received his Bachelor of Arts degree in English Language and Arts from

Beijing Foreign Languages University, China, in May 1978, his Master of Business

Administration by distance learning from the University of Wales, New Port, United

Kingdom, in September 2005 and an Honorary Doctor of Laws degree (Hon. LL.D)

from Royal Roads University in British Columbia, Canada, in June 2013.

Zhenwan Liu (柳振萬柳振萬柳振萬柳振萬), aged 58, was appointed as an executive director and vice chairman of the Board in June 2014. Mr. Liu has been the company’s president and

Co-CEO since 10 March 2014, and is primarily responsible for its general operation,

strategic planning and business direction.

Prior to joining the company, Mr. Liu worked as a teacher, youth league secretary

and head of the ethics education and research office at Dalian Polytechnic University

from December 1981 to December 1990, where he was responsible for lecturing and

managing student activities. He was the deputy director of the member education

office of the publicity department of Dalian Municipal Party Committee and the



director of planning and research division of Dalian Municipal Spiritual Civilization

Office, between December 1990 and August 1996, and later, the deputy director of

Dalian Municipal Spiritual Civilization Office (August 1996 to April 1998). He served

as the deputy head of Dalian Culture Bureau between April 1998 and November

1999, where he was responsible for the planning and coordination of cultural affairs.

He was the deputy head and deputy party secretary of Dalian Tourist Administration

between November 1999 and June 2000. From June 2000 to December 2006, he

was the head and party secretary of Dalian Tourist Administration, responsible for the

strategic planning and development of local tourism. He served as deputy secretary

general, office head and party secretary at the municipal government office of Dalian

from December 2006 to April 2010, and was responsible for the organisation,

coordination and management of the municipal government’s daily affairs. From April

2010 to February 2014, he served as the secretary of the party committee and the

chairman of the University Council at Dalian University of Foreign Languages where

he was responsible for implementing educational policies, managing educational

research and cultivating professional personnel. Mr. Liu has not held any directorship

role in any other listed company in the last three years.

Mr. Liu received a Bachelor’s degree in Mathematics from Dalian Polytechnic

University in January 1982, a Bachelor’s degree in Political Education from Liaoning

Normal University in July 1987 and a Master’s of Business Administration from

Dalian University of Technology in April 1997. Mr. Liu was awarded the title of

professorship by Dalian University of Foreign Languages in September 2010.

Jingxia Zhang (張景霞張景霞張景霞張景霞), aged 57, is the senior vice president and co-chief financial officer (Co-CFO) of the company and was appointed executive director in June 2014.

Ms. Zhang joined the company on 10 April 1995 and is primarily responsible for the

overall management, financial operations and human resources of the schools.

Before joining the company, Ms. Zhang was the director of finance of Jilin Province

Dunhua City Pharmaceutical Factory, a Chinese pharmaceutical manufacturer,

where she managed its accounts and financial operations. Ms. Zhang has not held

any directorship roles in any other listed companies in the last three years. Ms.

Zhang received her Financial Accounting diploma by distance learning from Jilin

Accounting School, China, in July 1991.

James William Beeke, aged 64, is the company’s director, vice president and BC

programme superintendent. He was appointed executive director in June 2014. Mr.

Beeke previously served as the vice chairman of the Board and the superintendent

of the company’s BC programme from 2005 to 2009. Mr. Beeke oversees the BC

programme’s operation and the schools.

Prior to joining the group, Mr. Beeke was employed by the British Columbia

provincial government as deputy inspector from 1996 to 1998 and, later, inspector

from 1998 to 2005, for the Ministry of Education of the BC provincial government. As

inspector, he was responsible for the inspection, certification and funding of all

independent schools in the province, and developed and directed BC’s Offshore

School Certification Programme. Since September 2009, he has been president of

Signum International Educational Services, Inc., a company that provides

educational consultant services to schools in Canada and internationally, where he

was responsible for assisting schools with board governance and strategic

development planning, performing school reviews, conducting principal evaluations

and providing analysis and comparisons of provincial curricula. Mr. Beeke has not

held any directorship roles in any other listed company in the last three years.

Mr. Beeke received his Bachelor of Arts degree and Master of Arts degree from

Western Michigan University in Michigan, United States, in December 1971 and

August 1973, respectively. He received the Certificate of Qualification from the British

Columbia Teachers in June 1991, Certificate of Recognition from the British

Columbia Minister of Education in 1991, Certificates of Recognition from the Chinese

Consulate (Vancouver, Canada) and from British Columbia Ministry of Education in

June 2005 and Certificate of Honorary Award from Liaoning Provincial Government

of China in 2006.



Non-Executive Directors

Howard Robert Balloch, aged 63, was appointed non-executive director of the

company in June 2014 and supervises the overall management and strategic

planning at the group. Mr. Balloch has been a director since 12 March 2008.

Mr. Balloch is a veteran Canadian diplomat. Before joining the group, he served as

Canadian Ambassador to China and Mongolia from April 1996 to July 2001, and to

North Korea from March 2000 to July 2001. Subsequently, he served as the

president and chief executive officer of the Canada China Business Council, a

private, non-profit business association facilitating and promoting trade and

investments between Canada and China, from 2001 to 2006, and is currently its vice

chairman.

Mr. Balloch received a Bachelor of Arts degree and a Master of Arts degree from

McGill University, Canada, in June 1973 and June 1974, respectively.

Independent Non-Executive Directors

Peter Humphrey Owen, aged 67, was appointed independent non-executive

director in June 2014. He is primarily responsible for supervising and providing

independent judgment to the Board.

Prior to joining the group, Mr. Owen served as the vice chair of the Workers

Compensation Review Board of British Columbia in 1986. Subsequently, he held

various positions at the Ministry of Education of the British Columbia provincial

government, including director, executive director, and assistant deputy minister

responsible for education-related legislation, governance, international education,

policy and planning, and a variety of programme areas, until May 2011. Mr. Owen

has not held any directorship role in any other listed company in the last three years.

Mr Owen received a Bachelor of Arts degree from Simon Fraser University, Canada,

in May 1976 and a Bachelor of Law degree (LLB) from the University of British

Columbia, Canada, in May 1979.

Chak Kei Jack Wong (王澤基王澤基王澤基王澤基), aged 42, was appointed independent non-executive director in June 2014. Mr. Wong is primarily responsible for supervising and providing

independent judgment to the Board.

Prior to joining the group, Mr. Wong was managing director and head of structuring in

the investment banking department of Barclays Capital Asia (including Japan). He

was responsible for client risk advisory and risk management solutions across all

asset classes. Before that, Mr. Wong was a managing director and trader in UBS

London and Hong Kong, co-heading the APAC structured products group which

trades and designs products in all asset classes and hybrids. He spent a number of

years in London in Goldman Sachs as executive director, working as a

strategist/quant and trader for rate, FX and inflation. Prior to that, he was a

quantitative analyst in credit derivatives and emerging markets in Morgan Stanley,

London.

Mr. Wong studied in The Chinese University of Hong Kong and University of

California at Berkeley. His major was Electrical Engineering with minors in Pure

Mathematics and French. He obtained his DPhil and MPhil degrees in Economics

from the University of Oxford. He was a Rhodes Scholar of Hong Kong for 1995.

Lap Tat Arthur Wong (黃黃黃黃立達立達立達立達), aged 54, was appointed independent non-executive director of the company in June 2014. Mr. Wong is primarily responsible for

supervising and providing independent judgment to the Board.

Between 1982 and 2008, Mr. Wong held various positions in Deloitte Touche

Tohmatsu (“Deloitte”) in Hong Kong, San Jose and Beijing, with the latest position as

a partner in the Beijing office. Subsequently he served as the chief financial officer of:

Asia New Energy Holdings Pte. Ltd, a manufacturer of fertilisers, chemicals and new

energy products (2008-09); Nobao Renewable Energy Holding Ltd, a renewable

energy company (March 2010 to November 2010); GreenTree Inns Hotel



Management Group, Inc., an economy hotel chain (from 2011 to 2012); and Beijing

Radio Cultural Transmission Company Limited, a music production and music data

management services company (since January 2013).

Mr. Wong previously served as an independent non-executive director at Besunyen

Holdings Co Ltd, from July 2010 to April 2014. He currently serves as an

independent non-executive director and chairperson of the audit committee of the

following listed companies: VisionChina Media, Inc., (VISN) since December 2011;

China Automotive Systems, Inc., (CAAS) since May 2012; Daqo New Energy Corp.,

(DQ) since December 2012; Petro-king Oilfield Services Ltd, (02178) since February

2013; and YOU On Demand Holdings, Inc., (YOD) since January 2014.

Mr. Wong received a Higher Diploma in Accountancy from the Hong Kong

Polytechnic University in November 1982 and a Bachelor of Science degree in

Applied Economics from the University of San Francisco in December 1988. He

became an associate of the Hong Kong Institute of Certified Public Accountants in

1985 and fellow in 1995. He became a fellow of the Association of Chartered

Certified Accountants in 1990 and a member of the American Institute of Certified

Public Accountants in 1992.

EXHIBIT 43: Maple Leaf’s major development milestones

Date Development milestones

Sep-96 Dalian Maple Leaf International School (middle and elementary school) opened in Jinshitan, Dalian

Apr-98 Dalian Maple Leaf High School was certified by the BCMOE

Jun-99 The first graduating class from Dalian Maple Leaf High School received their high school diplomas

Sep-05 First preschool, Dalian Maple Leaf Qianshan Xincheng Preschool, opened in Dalian

Jun-07 Acquired Dalian Maple Leaf Yuanjing Fengqiaoyuan Preschool, the name of which was later changed to Dalian Maple Leaf Fengqiao Preschool

Acquired Dalian Lanxi Wenyuan Preschool. Its name was later changed to Dalian Maple Leaf Lanxi Wenyuan Preschool

Sep-07 Wuhan Maple Leaf International School (High School) opened

May-08 Acquired Dalian Jiabao Sunshine Preschool. Its name was later changed to Dalian Maple Leaf Jiabao Preschool

Sep-08 Tianjin Taida Maple Leaf International School (high, middle and elementary school) opened

May-09 Acquired Dalian Jinhai Preschool. Its name was later changed to Dalian Maple Leaf Jinhai Preschool

Sep-12 Opened Henan Maple Leaf International School (middle and elementary school) – Maple Leaf’s first school jointly developed with local government

Nov-14 Listed on the Hong Kong Stock Exchange




Shareholding structure

The company raised estimated net proceeds of HKD866.2m through its listing on the

Hong Kong Stock Exchange, based on a listing price of HKD2.88 per share.

After the IPO, China Maple Leaf’s chairman and founder Shu Liang Sherman Jen

effectively owns 54% of the company.

Sequoia Capital China Growth Fund I, L.P. entered into a preferred shares purchase

agreement on 29 February 2008, subscribing 18,000,000 preferred shares for an

aggregate consideration of RMB180m. Upon the completion of the pre-IPO

Investment, Sequoia Capital China held approximately 20% of the then-issued share

capital of the company. The net proceeds from the pre-IPO investment have been

fully utilised for working capital, business expansion and other corporate purposes.

Immediately after the completion of the IPO, Sequoia Capital China held

approximately 17.18% of the total issued share capital of the company. The cost per

share after conversion into shares is approximately RMB0.79.

EXHIBIT 44: Shareholding structure (post-IPO)


53.81% 17.18% 1.12% 1.77% 0.82% 0.17% 25.04%

Sherman Investment Holdings

Sequoia Capital China Growth Fund I and affiliates

Shipston Maple Leaf Holdings

TBIG Education Holdings

Jen Shu-LingOther individuals

Public shareholders

China Maple Leaf EducationalSystems Limited



Use of IPO proceeds

The company intends to use the net proceeds of the IPO for the following purposes:

§ approximately 30% towards the expansion of its school network, in particular by developing new schools in major cities in China;

§ approximately 10% towards the maintenance, renovation and upgrade of its existing schools, such as the boys’ schools on the Dalian campus;

§ approximately 26% towards the acquisition of schools, except for foreign national schools and preschools, in major cities in China to supplement its school network.

The company will consider various factors in selecting acquisition targets,

including, among other things, the general socio-economic condition of the city in

which a target school is located, the demand for international education in such

cities and their neighbouring areas and the level of government support in

promoting international education. The company plans to open new schools using

the premises and land acquired from the target schools. It does not intend to

jointly operate such new schools with the relevant original school operators. It

expects to be the sole sponsor of each of these new schools and have exclusive

rights to operate each new school. Also, it expects to consolidate the new schools

into the group using the same contractual arrangements;

§ approximately 24% to repay bank loans; and

§ approximately 10% as working capital.



Risks

We believe the company is subject to the following major risks, among others:

§ The company may not be able to maintain or raise the tuition levels at its schools due to competition in the education industry sector, or obtain requisite approvals.

Rising competition may lead to market share loss, departure of key employees

and increased capital expenditures.

§ Parents and students may become less interested or lose interest in the BC high school diploma, the BC Global Education Programme or BC education as a

whole.

§ Maple Leaf may fail to obtain or renew China or BC certifications or the requisite China government approvals which are necessary to offer dual diplomas to its

high school graduates.

§ The company may fail to obtain all necessary approvals, licences and permits and to make all necessary registrations and filings in China.

§ It may fail to recruit and retain dedicated and capable teachers and other school personnel.

§ Chinese laws and regulations currently prohibit foreign ownership of elementary and middle schools in China. Furthermore, although PRC laws and regulations

allow foreign investment in foreign national schools, preschools and high schools,

government authorities either impose restrictions in this respect or, as a matter of

policy, withhold approvals for such ventures. If the PRC government finds that the

agreements that establish the structure for operating Maple Leaf in China do not

comply with applicable laws and regulations, Maple Leaf could face severe

penalties and its business may be materially affected.



Corporate governance

Board structure

Number of Independent Directors (ID)

3

Percentage of IDs in the board (%)

37.5

ID participation/attendance at board meetings

N.A

ID participation in audit/remuneration committees (%)

N.A.

ID terms (years of service, re-election/replacement procedures) No more than 3 years, rotation at least once every 3 years


Audit practices

Auditor

Deloitte

Length of service

>1 years

Reporting incidents

Nil

Fee track record

Audit fee in FY14 was RMB7.22m

Policy on change of Audit firm Reviewed every year with regard to audit fees, process and effectiveness


Compensation and remuneration

Directors' remuneration vs. earnings/ROE/share performance

RMB10.032m (4.633m share-based) in FY14, up 117.4% y-y, accounting for 24.4% of FY14 earnings

Changes/stability in senior management

Zhenwan Liu and James William Beeke were appointed in 2014, the rest of the senior management were appointed around 2008.

Incidents of termination of senior management

Nil

Track record on Insider sales Nil


Shareholders’ rights

Communication - shareholder participation in AGMs/EGMs N.A.

Related party transactions Total RMB3.544m between Mr. Sherman Jen and Mrs Ren Shu’e (Sherman Jen’s sister) are unsecured, interest free and repayable on demand

Voting issues - policies, incidents of rejected proposals All ordinary resolutions are passed by poll




Financial statements China Maple Leaf Educational

Profit and Loss (RMB 1000) Year Ending Aug 2013A 2014A 2015E 2016E 2017E

Revenue 471,219 540,269 633,412 728,372 838,260

Cost of sales (268,751) (305,148) (352,811) (403,518) (462,719)

Gross profit 202,468 235,121 280,602 324,854 375,540

Other operating income 4,960 5,456 5,501 5,545 5,590

Operating costs (48,646) (84,941) (76,235) (88,217) (106,784)

Operating EBITDA 158,782 155,636 209,867 242,182 274,346

Depreciation (29,873) (35,424) (39,663) (46,356) (46,356)

Goodwill amortisation 0 0 0 0 0

Operating EBIT 128,909 120,212 170,205 195,825 227,990

Net financing costs (15,554) (15,493) (13,088) (11,237) (7,827)

Associates 0 0 0 0 0

Recurring non operating income 0 0 0 0 0

Non recurring items (72,130) (56,283) 0 0 0

Profit before tax 41,225 48,436 157,117 184,589 220,163

Tax (8,043) (8,400) (12,569) (15,136) (18,053)

Profit after tax 33,182 40,036 144,547 169,452 202,110

Minority interests 0 0 0 0 0

Preferred dividends 0 0 0 0 0

Other items 0 0 0 0 0

Reported net profit 33,182 40,036 144,547 169,452 202,110

Non recurring items & goodwill (net) 72,161 88,971 0 0 0

Recurring net profit 105,343 129,007 144,547 169,452 202,110

Per share (RMB)

Recurring EPS * 0.14 0.16 0.11 0.13 0.15

Reported EPS 0.04 0.05 0.11 0.13 0.15

DPS 0.00 0.00 0.00 0.00 0.00

Growth

Revenue (%) 14.0 14.7 17.2 15.0 15.1

Operating EBITDA (%) 1.4 (2.0) 34.8 15.4 13.3

Operating EBIT (%) (1.3) (6.7) 41.6 15.1 16.4

Recurring EPS (%) 28.2 20.9 (34.0) 17.2 19.3

Reported EPS (%) (54.3) 19.1 112.7 17.2 19.3

Operating performance

Gross margin (%) 43.0 43.5 44.3 44.6 44.8

Operating EBITDA margin (%) 33.7 28.8 33.1 33.2 32.7

Operating EBIT margin (%) 27.4 22.3 26.9 26.9 27.2

Net margin (%) 22.4 23.9 22.8 23.3 24.1

Effective tax rate (%) 19.5 17.3 8.0 8.2 8.2

Dividend payout on recurring profit (%) 0.0 0.0 0.0 0.0 0.0

Interest cover (x) 8.3 7.8 13.0 17.4 29.1

Inventory days 0.0 0.0 0.0 0.0 0.0

Debtor days 0.0 0.0 0.0 0.0 0.0

Creditor days 520.0 543.4 564.6 576.3 581.2

Operating ROIC (%) 93.8 36.8 31.8 33.5 36.4

ROIC (%) 36.9 21.9 22.4 23.8 26.1

ROE (%) 26.3 29.2 16.4 12.3 12.9

ROA (%) 7.3 7.5 6.3 5.8 6.2

*Pre exceptional, pre-goodwill and fully diluted

Revenue By Division (RMB 1000) 2013A 2014A 2015E 2016E 2017E

High school tuition 259,205 288,041 332,682 382,875 428,009

Middle school tuition 68,150 79,259 99,178 116,584 146,590

Elementary school tuition 37,851 59,779 76,869 87,575 105,752

Foreign national school tuition 14,376 14,877 16,045 21,404 25,073

Preschool tuition 26,380 24,792 26,861 28,772 32,223

Textbooks 17,954 23,344 30,347 37,934 45,521

Summer and winter camp 26,234 24,832 25,577 26,600 27,664

Other educational services 21,069 25,345 25,852 26,627 27,426




Financial statements China Maple Leaf Educational

Cash Flow (RMB 1000) Year Ending Aug 2013A 2014A 2015E 2016E 2017E

Recurring net profit 105,343 129,007 144,547 169,452 202,110

Depreciation 29,873 35,424 39,663 46,356 46,356

Associates & minorities 0 0 0 0 0

Other non-cash items 30,427 35,622 20,362 19,178 16,046

Recurring cash flow 165,643 200,053 204,572 234,987 264,512

Change in working capital 84,662 145,888 127,825 135,237 153,391

Capex - maintenance 0 0 0 0 0

Capex - new investment (200,135) (110,765) (222,313) (227,504) (233,576)

Free cash flow to equity 50,170 235,176 110,083 142,719 184,327

Net acquisitions & disposals 0 (158,000) 0 0 0

Dividends paid 0 0 0 0 0

Non recurring cash flows (27,066) 3,448 (2,604) (9,787) (2,553)

Net cash flow 23,104 80,624 107,479 132,933 181,775

Equity finance 0 0 687,460 0 0

Debt finance 89,346 (76,941) (36,755) (42,826) (77,687)

Movement in cash 112,450 3,683 758,184 90,107 104,087

Per share (RMB)

Recurring cash flow per share 0.21 0.25 0.15 0.18 0.20

FCF to equity per share 0.06 0.30 0.08 0.11 0.14

Balance Sheet (RMB 1000) Year Ending Aug 2013A 2014A 2015E 2016E 2017E

Working capital assets 16,256 28,626 28,163 33,201 38,838

Working capital liabilities (1,048,199) (738,882) (868,137) (1,006,222) (1,163,280)

Net working capital (1,031,943) (710,256) (839,974) (973,021) (1,124,442)

Tangible fixed assets 1,177,025 1,218,897 1,401,324 1,582,223 1,769,257

Operating invested capital 145,082 508,641 561,350 609,201 644,815

Goodwill 1,982 1,982 1,982 1,982 1,982

Other intangible assets 0 0 0 0 0

Investments 3,493 0 0 0 0

Other assets 219,829 216,127 227,244 240,431 247,020

Invested capital 370,386 726,750 790,575 851,614 893,817

Cash & equivalents (409,303) (542,073) (1,300,213) (1,390,265) (1,494,332)

Short term debt 215,000 223,500 199,833 168,244 98,384

Long term debt * 60,000 0 0 0 0

Net debt (134,303) (318,573) (1,100,380) (1,222,021) (1,395,948)

Deferred tax 14,347 19,171 20,130 21,136 22,193

Other liabilities 72,700 558,918 575,585 587,807 600,770

Total equity 417,642 467,234 1,295,241 1,464,692 1,666,803

Minority interests 0 0 0 0 0

Invested capital 370,386 726,750 790,575 851,614 893,817

* includes convertibles and preferred stock which is being treated as debt

Per share (RMB)

Book value per share 0.54 0.61 0.97 1.10 1.25

Tangible book value per share 0.54 0.60 0.97 1.10 1.25

Financial strength

Net debt/equity (%) (32.2) (68.2) (85.0) (83.4) (83.8)

Net debt/total assets (%) (7.3) (15.9) (37.2) (37.6) (39.3)

Current ratio (x) 0.3 0.6 1.2 1.2 1.2

CF interest cover (x) 17.1 23.3 26.4 33.9 54.4

Valuation 2013A 2014A 2015E 2016E 2017E

Recurring P/E (x) * 12.5 10.3 15.6 13.3 11.2

Recurring P/E @ target price (x) * 17.1 14.2 21.5 18.3 15.3

Reported P/E (x) 39.6 33.3 15.6 13.3 11.2

Dividend yield (%) 0.0 0.0 0.0 0.0 0.0

P/CF (x) 7.9 6.7 11.0 9.6 8.5

P/FCF (x) 26.2 5.7 20.5 15.8 12.3

Price/book (x) 3.1 2.8 1.7 1.5 1.4

Price/tangible book (x) 3.1 2.8 1.7 1.5 1.4

EV/EBITDA (x) ** 7.4 6.9 5.1 4.5 3.5

EV/EBITDA @ target price (x) ** 10.5 10.1 8.3 8.0 6.5

EV/invested capital (x) 3.2 1.4 1.5 1.2 1.0

* Pre exceptional, pre-goodwill and fully diluted ** EBITDA includes associate income and recurring non-operating income




Disclaimers and Disclosures

APPENDIX

DISCLAIMERS AND DISCLOSURES APPLICABLE TO NON-US BROKER-DEALER(S): BNP Paribas Securities (Asia) Ltd

ANALYST(S) CERTIFICATION

Emily Lee, BNP Paribas Securities (Asia) Ltd, +852 2825 1862, [email protected].

The analyst(s) or strategist(s) herein each referred to as analyst(s) named in this report certify(ies) that (i) all views expressed in this report accurately reflect the personal view of the analyst(s) with regard to any and all of the subject securities, companies or issuers mentioned in this report; and (ii) no part of the compensation of the analyst(s) was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the research analyst herein. Analysts mentioned in this disclaimer are employed by a non-US affiliate of BNP Paribas Securities Corp., and are not registered/ qualified pursuant to NYSE and/or FINRA regulations.

IMPORTANT DISCLOSURES REQUIRED IN THE UNITED STATES BY FINRA RULES AND OTHER JURISDICTIONS "BNP Paribas” is the marketing name for the global banking and markets business of BNP Paribas Group. No portion of this report was prepared by BNP Paribas Securities Corp (US) personnel, and it is considered Third-Party Affiliate research under NASD Rule 2711. The following disclosures relate to relationships between companies covered in this research report and the BNP entity identified on the cover of this report, BNP Securities Corp., and other entities within the BNP Paribas Group (collectively, "BNP Paribas").

The disclosure column in the following table lists the important disclosures applicable to each company that has been rated and/or recommended in this report:

Company Ticker Disclosure (as applicable)

N/A N/A N/A

BNP Paribas represents that: 1. Within the past year, it has managed or co-managed a public offering for this company, for which it received fees. 2. It had an investment banking relationship with this company in the last 12 months. 3. It received compensation for investment banking services from this company in the last 12 months. 4. It expects to receive or intends to seek compensation for investment banking services from the subject company/ies in the next 3 months. 5. It beneficially owns 1% or more of any class of common equity securities of the subject company. 6. It makes a market in securities in respect of this company. 7. The analyst(s) or an individual who assisted in the preparation of this report (or a member of his/her household) has a financial interest position in

securities issued by this company. The financial interest is in the common stock of the subject company, unless otherwise noted. 8. The analyst (or a member of his/her household) is an officer, director, or advisory board member of this company or has received compensation from the

company.

IMPORTANT DISCLOSURES REQUIRED IN KOREA The disclosure column in the following table lists the important disclosures applicable to each Korea listed company that has been rated and/or recommended in this report:

Company Ticker Price (as of 15-Jan-2015 closing price) Interest

N/A N/A N/A N/A

1. The performance of obligations of the Company is directly or indirectly guaranteed by BNP Paribas Securities Korea Co. Ltd (“BNPPSK”) by means of payment guarantees, endorsements, and provision of collaterals and/or taking over the obligations.

2. BNPPSK owns 1/100 or more of the total outstanding shares issued by the Company. 3. The Company is an affiliate of BNPPSK as prescribed by Item 3, Article 2 of the Monopoly Regulation and Fair Trade Act. 4. BNPPSK is the financial advisory agent of the Company for the Merger and Acquisition transaction or of the Target Company whereby the size of the

transaction does not exceed 5/100 of the total asset of the Company or the total number of outstanding shares. 5. BNPPSK has taken financial advisory service regarding listing to the Company within the past 1 year. 6. With regards to the tender offer initiated by the Company based on Item 2, Article 133 of the Financial Investment Services and Capital Market Act,

BNPPSK acts in the capacity of the agent for the tender offer designated either by the Company or by the target company, provided that this provision shall apply only where tender offer has not expired.

7. The listed company which issued the stocks in question in case where 40 days has not passed since the new shares were listed from the date of entering into arrangement for public offering or underwriting-related agreement for issuance of stocks

8. The Company that has signed a nominated advisor contract with BNPPSK as defined in Item 2 of Article 8 of the KONEX Market Listing Regulation. 9. The Company is recognized as having considerable interests with BNPPSK in relation to No.1 to No. 8. 10. The analyst or his/her spouse owns (including delivery claims of marketable securities based on legal regulations and trading and misc. contracts) the

following securities or rights (hereinafter referred to as “Securities, etc.” in this Article) regardless of whose name is used in the trading. 1) Stocks, bond with stock certificate, and certificate of pre-emptive rights issued by the Company whose securities dealings are being solicited. 2) Stock options of the Company whose securities dealings are being solicited. 3) Individual stock future, stock option, and warrants that use the stocks specified in Item 1) as underlying.

GENERAL DISCLAIMER This report was produced by BNP Paribas Securities (Asia) Ltd, member company(ies) of the BNP Paribas Group. This report is for the use of intended recipients only and may not be reproduced (in whole or in part) or delivered or transmitted to any other person without our prior written consent. By accepting this report, the recipient agrees to be bound by the terms and limitations set forth herein. This report does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Customers are advised to use the information contained herein as just one of many inputs and considerations prior to engaging in any trading activity. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy or sell any securities or other



investments. This report is not intended to provide the sole basis of any evaluation of the subject securities and companies mentioned in this report. Information and opinions contained in this report are published for reference of the recipients and are not to be relied upon as authoritative or without the recipient’s own independent verification, or taken in substitution for the exercise of judgment by the recipient. Additionally, the products mentioned in this report may not be available for sale in certain jurisdictions. As an investment bank with a wide range of activities, BNP Paribas may face conflicts of interest, which are resolved under applicable legal provisions and internal guidelines. You should be aware, however, that BNP Paribas may engage in transactions in a manner inconsistent with the views expressed in this document, either for its own account or for the account of its clients.

Australia: This report is being distributed in Australia by BNP Paribas Sydney Branch, registered in Australia as ABN 23 000 000 117 at 60 Castlereagh Street Sydney NSW 2000. BNP Paribas Sydney Branch is licensed under the Banking Act 1959 and the holder of Australian Financial Services Licence no. 238043 and therefore subject to regulation by the Australian Securities & Investments Commission in relation to delivery of financial services. By accepting this document you agree to be bound by the foregoing limitations, and acknowledge that information and opinions in this document relate to financial products or financial services which are delivered solely to wholesale clients (in terms of the Corporations Act 2001, sections 761G and 761GA; Corporations Regulations 2001, division 2, reg. 7.1.18 & 7.1.19) and/or professional investors (as defined in section 9 of the Corporations Act 2001).

Canada: The information contained herein is not, and under no circumstances is to be construed as, a prospectus, an advertisement, a public offering, an offer to sell securities described herein, or solicitation of an offer to buy securities described herein, in Canada or any province or territory thereof. Any offer or sale of the securities described herein in Canada will be made only under an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under applicable securities laws or, alternatively, pursuant to an exemption from the dealer registration requirement in the relevant province or territory of Canada in which such offer or sale is made. The information contained herein is under no circumstances to be construed as investment advice in any province or territory of Canada and is not tailored to the needs of the recipient. To the extent that the information contained herein references securities of an issuer incorporated, formed or created under the laws of Canada or a province or territory of Canada, any trades in such securities must be conducted through a dealer registered in Canada. No securities commission or similar regulatory authority in Canada has reviewed or in any way passed judgment upon these materials, the information contained herein or the merits of the securities described herein, and any representation to the contrary is an offence.

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Malaysia: This report is issued and distributed by BNP Paribas Capital (Malaysia) Sdn Bhd. The views and opinions in this research report are our own as of the date hereof and are subject to change. BNP Paribas Capital (Malaysia) Sdn Bhd has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only to clients of BNP Paribas Capital (Malaysia) Sdn Bhd. This publication is being provided to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of BNP Paribas Capital (Malaysia) Sdn Bhd.

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Singapore: This report is distributed in Singapore by BNP Paribas Securities (Singapore) Pte Ltd ("BNPPSSL") and may be distributed in Singapore only to an Accredited or Institutional Investor, each as defined under the Financial Advisers Regulations ("FAR") and the Securities and Futures Act (Chapter 289) of Singapore, as amended from time to time. In relation to the distribution to such categories of investors, BNPPSSL and its representatives are exempted under Regulation 35 of the FAR from the requirements in Section 36 of the Financial Advisers Act of Singapore, regarding the disclosure of certain interests in, or certain interests in the acquisition or disposal of, securities referred to in this report. For Institutional and Accredited Investors in Singapore, please contact BNP Paribas Securities (Singapore) Ptd Ltd (company registration number: 199801966C; address: 10 Collyer Quay, 34/F Ocean Financial Centre, Singapore 049315; tel: (65) 6210 1288; fax: (65) 6210 1980) for all matters and queries relating to this report.

South Africa: In South Africa, BNP Paribas Cadiz Securities (Pty) Ltd and BNP Paribas Cadiz Stock Broking (Pty) Ltd (hereinafter referred to as “BNPP Cadiz”) are licensed members of Johannesburg Stock Exchange and are authorised Financial Services Providers and subject to regulation by the Financial Services Board. BNPP Cadiz does not expressly or by implication represent, recommend or propose that the financial products referred to in this report are appropriate to the particular investment objectives, financial situation or particular needs of the recipient.

South Korea: BNP Paribas Securities Korea is registered as a Licensed Financial Investment Business Entity under the FINANCIAL INVESTMENT SERVICES AND CAPITAL MARKETS ACT and regulated by the Financial Supervisory Service and Financial Services Commission. This document does not constitute an offer to sell to or the solicitation of an offer to buy from any person any financial products where it is unlawful to make the offer or solicitation in South Korea. Switzerland: This report is intended solely for customers who are “Qualified Investors” as defined in article 10 paragraphs 3 and 4 of the Swiss Federal Act on Collective Investment Schemes of 23 June 2006 (CISA) and the relevant provisions of the Swiss Federal Ordinance on Collective Investment Schemes of 22 November 2006 (CISO). “Qualified Investors” includes, among others, regulated financial intermediaries such as banks, securities dealers, fund management companies and asset managers of collective investment schemes, regulated insurance companies as well as pension funds and companies with professional treasury operations. This document may not be suitable for customers who are not Qualified Investors and should only be used and passed on to Qualified Investors. For specification purposes, a “Swiss Corporate Customer” is a Client which is a corporate entity, incorporated and existing under the laws of Switzerland and which qualifies as “Qualified Investor” as defined above." BNP Paribas (Suisse) SA is authorised as bank and as securities dealer by the Swiss Federal Market Supervisory Authority FINMA. BNP Paribas (Suisse) SA is registered at the Geneva commercial register under No. CH-270-3000542-1. BNP



Paribas (Suisse) SA is incorporated in Switzerland with limited liability. Registered Office: 2 place de Hollande, CH-1204 Geneva.

Taiwan: Information on securities that trade in Taiwan is distributed by BNP Paribas Securities (Taiwan) Co., Ltd. Such information is for your reference only. The reader should independently evaluate the investment risks and is solely responsible for their investment decision. Information on securities that do not trade in Taiwan is for informational purposes only and is not to be construed as a recommendation or a solicitation to trade in such securities. BNP Paribas Securities (Taiwan) Co., Ltd. may not execute transactions for clients in these securities. This publication may not be distributed to the public media or quoted or used by the public media without the express written consent of BNP Paribas.

Thailand: Research relating to Thailand and Thailand based issuers is produced pursuant to an arrangement between BNP PARIBAS (“BNPP”) and Finansia Syrus Securities Public Company Limited (“FSS”). FSS International Investment Advisory Securities Co Ltd (“FSSIA”) prepares and distributes research under the brand name “BNP PARIBAS/FSS”. BNPP is not an affiliate of FSSIA or FSS. FSS also publishes a different research product under the brand name “FINANSIA SYRUS,” which is prepared by research analysts who are not part of FSSIA and who may cover the same securities, issuers, or industries that are the subject of this report. The ratings, recommendations, and views expressed in this report may differ from the ratings, recommendations, and views expressed by other research analysts or research teams employed by FSS. This report is being distributed outside Thailand by members of BNP Paribas.

Turkey: This report is being distributed in Turkey by TEB Investment (TEB YATIRIM MENKUL DEGERLER A.S., Teb Kampus D Blok Saray Mah. Kucuksu Cad. Sokullu Sok., No:7 34768 Umraniye, Istanbul, Turkey, Trade register number: 358354, www.tebyatirim.com.tr) and outside Turkey jointly by TEB Investment and BNP Paribas. Information, comments and suggestions on investment given in this material are not within the scope of investment consulting. The investment consulting services are rendered tailor made for individuals by competent authorities considering the individuals’ risk and return preferences. However the comments and recommendations herein are based on general principles. These opinions may not be consistent with your financial status as well as your risk and return preferences. Therefore, making an investment decision only based on the information provided herein may not bear consequences in parallel with your expectations. This material issued by TEB Yatırım Menkul Değerler A.Ş. for information purposes only and may be changed without any prior notification. All rights reserved. No part of this material may be copied or reproduced in any manner without the written consent of TEB Yatırım Menkul Değerler A.Ş. Although TEB Yatırım Menkul Değerler A.Ş. gathers the presented material that is current as possible, it does not undertake that all the information is accurate or complete, nor should it be relied upon as such. TEB Yatırım Menkul Değerler A.Ş. assumes no responsibility whatsoever in respect of or arising out or in connection with the content of this material to third parties. If any third party chooses to use the content of this material as reference, he/she accepts and approves to do so entirely at his/her own risk.

United States: This report may be distributed in the United States only to U.S. Persons who are “major U.S. institutional investors” (as such term is defined in Rule 15a-6 under the Securities Exchange Act of 1934, as amended) and is not intended for the use of any person or entity that is not a “major U.S. institutional investor”. U.S persons who wish to effect transactions in securities discussed herein must do so through BNP Paribas Securities Corp., a US-registered broker dealer and member of FINRA, SIPC, NFA, NYSE and other principal exchanges.

Certain countries within the European Economic Area: This document may only be distributed in the United Kingdom to eligible counterparties and professional clients and is not intended for, and should not be circulated to, retail clients (as such terms are defined in the Markets in Financial Instruments Directive 2004/39/EC (“MiFID”)). This document will have been approved for publication and distribution in the United Kingdom by BNP Paribas London Branch, a branch of BNP Paribas SA whose head office is in Paris, France. BNP Paribas SA is incorporated in France with limited liability with its registered office at 16 boulevard des Italiens, 75009 Paris. BNP Paribas London Branch (registered office: 10 Harewood Avenue, London NW1 6AA; tel: [44 20] 7595 2000; fax: [44 20] 7595 2555) is authorised by the Autorité de Contrôle Prudentiel and the Prudential Regulation Authority and subject to limited regulation by the Financial Conduct Authority and Prudential Regulation Authority. Details about the extent of our authorisation and regulation by the Prudential Regulation Authority, and regulation by the Financial Conduct Authority are available from us on request.This report has been approved for publication in France by BNP Paribas, a credit institution licensed as an investment services provider by the Autorité de Contrôle Prudentiel whose head office is 16, Boulevard des Italiens 75009 Paris, France. This report is being distributed in Germany either by BNP Paribas London Branch or by BNP Paribas Niederlassung Frankfurt am Main, regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin).

Other Jurisdictions: The distribution of this report in other jurisdictions or to residents of other jurisdictions may also be restricted by law, and persons into whose possession this report comes should inform themselves about, and observe, any such restrictions. By accepting this report you agree to be bound by the foregoing instructions. This report is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

All research reports are disseminated and available to all clients simultaneously through our internal client websites. For all research available on a particular stock, please contact the relevant BNP Paribas research team or the author(s) of this report.

Additional Disclosures Target price history, stock price charts, valuation and risk details, and equity rating histories applicable to each company rated in this report is available in our most recently published reports available on our website: http://eqresearch.bnpparibas.com, or you can contact the analyst named on the front of this note or your BNP Paribas representative.

All share prices are as at market close on 15 January 2015 unless otherwise stated.

RECOMMENDATION STRUCTURE

Stock Ratings Stock ratings are based on absolute upside or downside, which we define as (target price* - current price) / current price. BUY (B). The upside is 10% or more. HOLD (H). The upside or downside is less than 10%. REDUCE (R). The downside is 10% or more. Unless otherwise specified, these recommendations are set with a 12-month horizon. Thus, it is possible that future price volatility may cause a temporary mismatch between upside/downside for a stock based on market price and the formal recommendation. * In most cases, the target price will equal the analyst's assessment of the current fair value of the stock. However, if the analyst doesn't think the market will reassess the stock over the specified time horizon due to a lack of events or catalysts, then the target price may differ from fair value. In most cases, therefore, our recommendation is an assessment of the mismatch between current market price and our assessment of current fair value.

Industry Recommendations Improving (é): The analyst expects the fundamental conditions of the sector to be positive over the next 12 months. Stable (previously known as Neutral) (çè): The analyst expects the fundamental conditions of the sector to be maintained over the next 12 months. Deteriorating (ê): The analyst expects the fundamental conditions of the sector to be negative over the next 12 months. Country (Strategy) Recommendations Overweight (O). Over the next 12 months, the analyst expects the market to score positively on two or more of the criteria used to determine market recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index returns relative to the market cost of equity. Neutral (N). Over the next 12 months, the analyst expects the market to score positively on one of the criteria used to determine market recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index returns relative to the market cost of equity. Underweight (U). Over the next 12 months, the analyst does not expect the market to score positively on any of the criteria used to determine market recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index returns relative to the market cost of equity.

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RATING DISTRIBUTION (as at 16 January 2015)

Total BNP Paribas coverage universe 685 Investment Banking Relationship (%)

Buy 344 Buy 9.90

Hold 252 Hold 4.80

Reduce 89 Reduce 2.20

Should you require additional information concerning this report please contact the relevant BNP Paribas research team or the author(s) of this report.

© 2015 BNP Paribas Group

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