maple leaf (1317 hk) · 2016. 5. 13. · maple leaf’s average annual tuition fee was much lower...

Maple Leaf (1317 HK)

May 12, 2016 Equity Research | Consumer Discretionary

Buy (initiation)

Target price: HK$6.80

Quality education provider, asset-light approach driving growth; initiate at Buy

Albert Yip, CFA SFC CE No. ADT599 [email protected] +852 3719 1010 GF Securities (Hong Kong) Brokerage Limited 29-30/F, Li Po Chun Chambers 189 Des Voeux Road Central Hong Kong

Initiate at Buy with TP of HK$6.80 Maple Leaf, the largest international school operator

in China, offers full K-12 bilingual education at affordable tuition fees. We forecast adjusted net profit growth of 41/22/28% in FY16/17/18, driven by 28/24/24% revenue growth and 5.3/1.1/2.5pp OP margin expansion. Our target price of HK$6.80 represents 25x FY17E P/E, and is based on 1.0x PEG (vs 25% FY17-18 EPS CAGR), in line with its peers’ average. We believe Maple Leaf deserves a high multiple given its high earnings growth, high visibility and scarcity premium. We cross-check this with a DCF-based valuation, which comes in at HK$7.30/share, suggesting our PEG-based target price is not aggressive. Potential catalysts: 1) M&A; 2) encouraging student enrollment data. Strong academic record Among Maple Leaf’s ~1,500 high school graduates admitted to

overseas universities in the 2014/15 school year, 51% went on to the world’s top-100 universities (vs one-third of graduates for its competitor Nord Anglia). According to CollegeNode, Dalian Maple Leaf International School was ranked 40th in its list of China’s top-50 high schools in 2015. High visibility Full-year tuition fees from elementary through to high schools are pre-paid

at the beginning of the school year. In 1HFY16, deferred revenue rose 30% YoY, driven by a ~9% increase in average tuition fees and an 18% YoY rise in the number of students enrolled. This means top-line growth for 2HFY16 is largely secure. We also see the nature of school tuition fees as quite non-cyclical compared to other consumer discretionary categories such as footwear or apparel. Upside potential for tuition fees Maple Leaf’s tuition fees were much lower than other

leading international schools in China in the last school year, according to Frost & Sullivan data. For example, in Shanghai, its high school fee is Rmb81,000/yr, much lower than Nord Anglia’s Rmb~290,000/yr. Given Maple Leaf’s strong academic achievements, we see upside potential for tuition fees. In FY17, the company plans to raise high school tuition fees in Tianjin by 20% and cancel the 19% discount on high school tuition fees in Shanghai. Expansion strategy Maple Leaf will adopt an asset-light approach to expanding its

school network, focusing on second and third-tier cities in China, and establishing more middle and elementary schools near its high schools as feeder schools, forming a pyramid structure from elementary to high school in terms of student enrollment. Sitting on a net cash balance of Rmb800m as of end-1HFY16, the company is also considering M&A opportunities both in China and overseas. It appointed Mr Edward John Slade as president of Asia-Pacific in Mar 2016, who has more than 25 years’ experience in investment banking. Risks 1) Canadian dollar appreciates against the Rmb; 2) poor academic results by high

school graduates; 3) industry policy risks; 4) oversupply of international schools; 5) surge in teachers costs; 6) absolute P/E has increased along with the significant rise in the share price over the last six months.

Stock valuation

Sources: Company data, GF Securities (HK) estimates

YE Aug

31

Turnover

(Rmb m)

Net profit

(Rmb m)

Adjusted net

profit (Rmb m)

Adjusted EPS

(Rmb)

EPS YoY

(%)

Core P/E Yield (%) BPS

(Rmb)

P/B ROE

(%)2014 540 40 127 na na na na na na 28.8

2015 653 206 186 0.175 na 26.5 1.6 1.3 3.5 16.3

2016E 833 272 262 0.193 10 25.5 1.6 1.5 3.4 13.8

2017E 1,029 325 320 0.236 22 21.5 1.9 1.6 3.2 15.4

2018E 1,278 417 408 0.300 28 17.3 2.4 1.8 2.9 17.6

Stock performance

Source: Bloomberg

Key data

Source: Bloomberg

-40%-20%

0%20%40%60%80%

100%120%140%

May-15 Aug-15 Nov-15 Feb-16

HSI Maple Leaf

May 12 close (HK$) 5.81

Shares in issue (m) 1359.7

Major shareholder Sherman Jen (54.5%)

Market cap (HK$ bn) 7.9

3M avg. vol. (m) 7.2

52W high/low (HK$) 6.32/1.69

mailto:[email protected]

May 12, 2016

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Company report

High percentage of high school graduates admitted to top universities The company has signed MOUs with over 50 universities to facilitate the admission process for its high school graduates, which we see as recognition of the academic performance and English capabilities of the students at the company’s schools. Maple Leaf has established itself as a quality international school brand thanks to the good academic track record of its graduates, something parents keep a keen eye on when selecting schools for their children. In the 2014/15 school year, over 90% of the company’s high school graduates were admitted to overseas universities and colleges (around 1,500 students), and over 51% of these graduates were admitted to the world’s top-100 universities (based on QS World University rankings) (Figure 1). The company has successfully maintained this ratio at a high level, even as the number of high school graduates at its schools has grown. This ratio was even higher than Nord Anglia’s (a premium international school operator listed in the US; one-third of its graduates were admitted to global top-100 universities). According to CollegeNode, Dalian Maple Leaf International School was ranked 40th in its list of China’s top-50 high schools in 2015, making it one of the few private schools included on the list. The ranking was based on the percentage of high school graduates admitted to US universities, the percentage of students that received offers from US universities, the level of internationalization at the high school, students’ scores in TOFEL and SAT exams, and the school’s recognition by US universities.

Figure 1: Percentage of Maple Leaf’s high school graduates admitted to global top-100 universities

Sources: Company data, GF Securities (HK)

High visibility Full-year tuition fees from elementary (primary) to high schools are prepaid at the beginning of the school year, and booked as deferred revenue in the company’s balance sheet. Deferred revenue rose 32% YoY in FY15, driven by 23% YoY growth in students and a 22% increase in tuition fees at high schools in Dalian, Wuhan, Chongqing and Zhenjiang as well as elementary and middle schools in Dalian. The new tuition fees are applicable to new students (i.e. the first grade in elementary, middle and high schools). This means the impact of the tuition fee hikes will be spread across three financial years (FY16/17/18) for middle and high schools and six financial years for the elementary school. Deferred revenue jumped 30% YoY in 1HFY16, driven by 18% YoY growth in students in Feb and a ~9% average tuition fee increase, suggesting high revenue growth momentum will continue in 2HFY16. Despite the softening economy, we think parents will keep investing in their children’s education, especially quality schools. We therefore see the nature of school tuition fees as quite non-cyclical compared to other consumer discretionary categories such as apparel and footwear.

44%

38%

47%51% 51%

0%

10%

20%

30%

40%

50%

60%

FY11 FY12 FY13 FY14 FY15

May 12, 2016

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Company report

Upside potential in tuition fees Maple Leaf’s average annual tuition fee was much lower than other leading international school operators in China in the last school year, according to Frost & Sullivan (Figure 2), partly due to the fact that the other top-four schools operate mainly in first-tier cities and offer the more popular IB/A-Level/IGCSE curricula, in our view. That said, in Shanghai, Maple Leaf’s high school fee is still much lower than Nord Anglia International School Shanghai, Pudong (Rmb81,000/yr vs Rmb~290,000/yr). Backed by a reputation for good academic results, we see upside potential in tuition fees. In FY16, the company raised tuition fees by 22% for high schools in Dalian, Wuhan, Chongqing and Zhenjiang as well as primary and middle schools in Dalian. In FY17, the company plans to raise its tuition fees for Tianjin high school by 20% and cancel the discount on tuition fees for Shanghai high schools (from Rmb81,000/yr to Rmb100,000/yr). According to management, a school tuition fee increase requires the approval of local government pricing authorities. In general, each private school can only raise tuition fees once every three years and the tuition fee increase cannot be greater than 25%.

Figure 2: Comparison of average annual tuition fees for the top-5 international school operators in China (2014/15 school year)

Sources: Frost & Sullivan, Company data

Expansion strategy Asset-light approach The company will adopt an asset-light approach to expanding its school

network in China, mainly in second and third-tier cities, targeting middle class families with affordable tuition fees. Because quality international schools can add value to property development projects, local governments and property developers are willing to bear the capex for school campus buildings. The company’s capex for asset-light projects is around Rmb10-20m (vs Rmb150m-200m under an asset-heavy model). The benefit of an asset-light approach is the low demand on capex meaning the company can take on a greater number of new projects at the same time. Generally speaking, the breakeven period is 1-2 years (vs 2-3 years with an asset-heavy model) when the number of students reaches 300 (vs 500 for the asset-heavy model). Going forward, the company will develop more elementary and middle schools near its high schools as feeders forming a pyramid structure from elementary schools through to high schools in terms of student enrollment. M&A The company is considering M&A opportunities both in China and overseas backed by its

Rmb800m net cash balance in 1HFY16. Domestically, the company is considering appropriate acquisitions of existing school premises. Overseas, the company appointed Mr Edward John Slade as president of Asia-Pacific in Mar 2016. Mr Slade has more than 25 years’ investment banking experience. He will be principally responsible for the company’s business development and strategy. We also think the company may consider opportunities in Canada, a popular destination for Chinese students heading overseas to study at an increasingly young age.

School portfolio and expansion projects

Based on the company’s expansion plan, its number of schools is set to grow from 46 in FY16E to 73-74 in FY18. Maximum student enrollment capacity is expected to increase from 26,090 in FY15 to 44,290 in FY18, representing a CAGR of 20%.

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Company report

Figure 3: Existing schools and pipeline projects


Figure 4: Student enrollment capacity


Growth outlook

We forecast 41%/22%/28% adjusted net profit growth for the company in FY16/17/18, driven by 28%/24%/24% revenue growth and 5.3pp/1.1pp/2.5pp OP margin expansion.

Revenue growth Our 28%/24%/24% revenue growth forecasts for FY16/17/18 will be driven by an estimated 21%/20%/25% growth in student enrollment in FY16/17/18, plus: 1) an average 22% tuition fee increase in high schools in Dalian, Chongqing, Wuhan and Zhenjiang as well as primary and middle schools in Dalian in FY16, and; 2) 20%/23% tuition fee increase in high schools in Tianjin/Shanghai in FY17.

CitiesYear of

opening

Asset

light

High

school

Middle

school

Primary

school

Pre-

school

Foreign

international

school

Dalian 1995 N 1 1 1 10 1

Wuhan, Hubei 2007 N 1 1 1 1

Tianjin (Taida) 2008 N 1 1 1

Chongqing 2009 N 1 1 1 1

Zhenjiang, Jiangsu 2011 N 1 1 1

Luoyang, Henan 2012 Y 1 1 1

Ordos, Inner Mongolia 2012 Y 1 1 1

Shanghai 2013 N 1 1

Pingdingshan, Henan 2014 Y 1 1 1

Tianjin (Huayuan) 2014 Y 1 1

Jingzhou, Hubei 2015 N 1 1

Yiwu, Zhejiang 2015 N 1 1 1

Yiwu, Zhejiang Sep-16 N 1

Pinghu, Zhejiang Sep-16 N 1 1 1

Xian, Shaanxi Sep-16 Y 1 1

Huai'an, Jiangsu Sep-16 Y 1 1

Tianjin Sep-16 Y 1

Cities in Hubei Sep-16 Y 1-2

Xian, Shaanxi 2017/18 Y 1 1

Huzhou, Zhejiang 2017/18 Y 1 1 1

Weifang, Shangdong 2017/18 Y 1 1 1

Yancheng, Jiangsu 2017/18 Y 1 1 1

Dalian 2017/18 Y 1 1 1

Shijiazhuang, Hebei 2017/18 Y 1 1 1

Total 9 20 19 21-22 4

12,490 14,290 18,990

22,490 26,090

30,040

35,490

44,290

73.0% 73.5%

61.6% 60.1% 61.6%65.0% 66.0% 66.0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E

Number of students (LHS) Utilization rate (%) (RHS)

May 12, 2016

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Company report

Margin expansion

We expect GM to widen from 45.7% in FY15 to 53.0% in FY18, driven by tuition fees increases, and an increase in the utilization rate. In FY16, we anticipate that the depreciation of the Canadian dollar against the Rmb will further boost GM. According to Bloomberg estimates, the Canadian dollar is forecasted to appreciate by 7%/4% against the Rmb in FY17/18. This will partly offset the positive impact of an increase in tuition fees and utilization rate. The cost of British Columbia certified teachers (who receive their salaries in Canadian dollars) is estimated to account for 24% of total cost of sales in FY16. We estimate OP margin will increase from 27.8% in FY15 to 36.7% in FY18, fueled by a GM expansion and a decrease in its marketing and administrative expenses ratio.

Figure 5: Key assumptions

Sources: Company data, GF Securities (HK) estimates, Bloomberg estimates

Valuation

We believe Maple Leaf deserves to trade at a high multiple given its high earnings growth, high visibility and scarcity premium. We set a target price of HK$6.80, representing 25x FY17E P/E, and based on 1.0x FY17 PEG (vs 25% FY17-18 EPS CAGR), in line with its peers’ average. We have cross-checked this with a DCF-based valuation: assuming a terminal growth rate of 2% until FY23, gradually softening revenue growth, from 13.7% in FY19 to 2% in FY23, unchanged EBIT margins until FY19 and a WACC of 13.25%, our DCF-based valuation comes in at HK$7.30/share, suggesting our PEG-based target price is not aggressive.

YE Aug 31 (Rmb m) FY13 FY14 FY15 FY16E FY17E FY18E

Total revenue 406 540 653 833 1,029 1,278

growth % 14.0% 14.7% 20.9% 27.5% 23.5% 24.2%

Tuition fees 406 467 555 707 883 1,104

growth % 10.6% 15.0% 18.8% 27.5% 24.9% 25.0%

Others 0 74 98 126 146 174

growth % 33.8% 27.6% 16.1% 19.3%

Gross margin 43.0% 43.5% 45.7% 50.4% 51.7% 53.0%

Marketing expenses ratio 4.4% 4.0% 3.4% 2.9% 2.6% 2.3%

Administrative expenses ratio 11.9% 13.8% 15.6% 15.9% 15.8% 15.0%

Operating profit margin 27.1% 26.2% 27.8% 33.2% 34.3% 36.7%

Adj effective tax rate -7.1% -8.0% -5.2% -7.5% -12.0% -15.0%

Net profit 33 40 206 272 325 417

growth % -64.7% 20.7% 413.4% 32.1% 19.6% 28.5%

Adj net profit 105 127 186 262 320 408

growth % -0.9% 20.9% 45.8% 41.1% 22.2% 27.5%

Net profit margin 22.4% 23.6% 28.5% 31.5% 31.1% 31.9%

Payout ratio na na 43.4% 40.0% 40.0% 40.0%

Average tuition fee (Rmb) 36,563 37,029 37,483 39,732 41,123 41,946

growth % -2.2% 1.3% 1.2% 6.0% 3.5% 2.0%

Student enrollment (end of June) 11,697 13,513 16,078 19,526 23,423 29,231

growth % 11.3% 15.5% 19.0% 21.4% 20.0% 24.8%

Utilization rate 61.6% 60.1% 61.6% 65.0% 66.0% 66.0%

May 12, 2016

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Company report

Figure 6: Valuation comparison for education service providers

Sources: Bloomberg estimates, GF Securities (HK) estimates

Figure 7: DCF analysis

Sources: Company data, GF Securities (HK) estimates, Bloomberg

Figure 8: P/E band

Sources: Company data, GF Securities (HK) estimates, Bloomberg

Mkt Cap PEG (x)

Ticker Rating (US$ m) Currency Price TP FY16E FY17E FY18E FY16EFY17EFY18EFY16EFY17EFY18E FY17E FY16EFY17EFY18EFY16EFY17EFY18EFY16EFY17EFY18EFY16EFY17EFY18EFY16EFY17EFY18E

Maple Leaf 1317 HK Buy 1,018 HKD 5.81 6.80 25.5 21.5 17.3 41 22 28 10 22 28 0.87 28 24 24 33.2 34.3 36.7 1.6 1.9 2.4 3.4 3.2 2.9 13.8 15.4 17.6

China/International educational services providers

Virscend 1565 HK NR 1,787 HKD 4.49 na 42.8 32.8 20.9 152 26 59 na 30 57 0.76 19 15 27 41.3 43.1 46.8 1.6 1.9 2.9 4.8 4.5 4.0 14.9 13.9 20.2

New Oriental Education EDU US NR 6,208 USD 39.56 na 21.1 17.7 15.9 53 20 na 22 19 11 1.16 37 15 10 14.4 15.4 na 0.4 0.5 na 3.7 3.1 na 18.7 19.2 na

Tarena International TEDU US NR 586 USD 10.51 na 14.8 11.9 10.8 47 26 15 34 25 10 0.70 24 24 22 15.6 16.6 16.6 1.1 1.4 2.1 2.4 2.0 1.7 17.1 18.4 17.0

China Distance Education DL US NR 491 USD 13.78 na 15.3 13.7 12.6 30 19 4 33 11 9 1.36 18 15 11 28.0 27.4 26.6 5.5 5.6 5.7 10.3 9.8 9.0 na na na

TAL Education XRS US NR 4,305 USD 53.76 na 33.0 24.2 18.4 8 40 33 8 37 31 0.71 42 35 27 14.4 15.7 18.4 na na na 8.2 6.4 na 26.8 31.0 na

Nord Angila NORD US NR 2,176 USD 20.90 na 32.2 24.3 18.7 813 35 28 829 32 30 0.79 47 13 17 15.7 16.0 17.1 0.0 0.0 0.0 6.9 5.7 4.6 15.4 21.0 24.2

G8 Education GEM AU NR 1,125 AUD 4.07 na 15.0 13.4 12.4 14 14 11 12 12 8 1.34 16 11 10 20.6 21.1 20.9 6.0 6.3 6.4 2.4 2.3 2.2 17.7 17.6 18.0

Simple average 24.9 19.7 15.7 159 26 25 156 24 22 0.97 29 19 18 21.4 22.2 24.4 2.5 2.6 3.4 5.5 4.8 4.3 18.4 20.2 19.8

OP margin (%) Yield (%) P/B (x) ROE (%)P/E (x) Net profit growth (%) EPS growth (%) Revenue growth (%)

YE Aug (Rmb m) FY17E FY18E FY19E FY20E FY21E FY22E FY23E

Revenue 1,029 1,278 1,454 1,611 1,738 1,824 1,860

growth 23.5% 24.2% 13.7% 10.8% 7.9% 4.9% 2.0%

EBIT 353 469 531 588 635 666 679

Tax paid (33) (59) (79) (87) (94) (99) (101)

NOPAT 319 410 452 501 541 567 579

Capex (160) (160) (170) (175) (180) (186) (191)

Depreciation 71 82 87 97 104 109 112

Change in working capital 310 254 282 312 336 353 360

Free Cash Flow 540 586 651 735 801 844 859

Discounted FCF 540 517 508 506 487 453 4,104

Terminal value @2% growth rate 4,104 Risk-free rate 2.73%

Sum of discounted FCF 7,115 Beta 1.17

Net cash/(debt) in FY16E 1,294 Expected market return 11.72%

Value of company 8,409 WACC 13.25%

No of shares (mil) 1,360

Value per share (HK$) 7.3

1

2

3

4

5

6

7

No

v-1

4

Feb

-15

May

-15

Au

g-1

5

No

v-1

5

Feb

-16

22x

18x

14x

9x

27x

(HK$)

May 12, 2016

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Company report

Figure 9: Financial statements


Company background

Established in 1998, Maple Leaf was the world’s first high school operator to become British Columbia certified, according to BCMOE. Since then, the company has offered dual-curriculum, dual-diploma (British Columbia high school diploma and PRC high school diploma) education at its high schools. The company, a private school operator offering full K-12 bilingual education, is the largest international school operator in China by student enrollment, according to Frost & Sullivan. In 1HFY16, the company had 46 schools located across 11 cities in China, with 17,980 students and 1,762 teachers as of Feb 29, 2016. In 1HFY16, 89% of revenue came from tuition fees and 11% came from textbooks, summer and winter camps, and other education services.

Year-end Aug 31 (Rmb m) FY14 FY15 FY16E FY17E FY18E Year-end Aug 31 (Rmb m) FY14 FY15 FY16E FY17E FY18E

Revenue 540 653 833 1,029 1,278 Fixed assets

Cost of sales (305) (354) (413) (497) (601) PPE 1,219 1,398 1,613 1,702 1,781

Gross profit 235 299 420 532 677 Prepaid lease payments 192 170 166 162 157

Investment properties 18 17 16 15 14

Other income 4 9 15 11 16 Goodwill 2 12 12 12 12

Marketing expenses (22) (22) (24) (27) (29) Intangible assets 0 1 1 1 1

Administration expenses (75) (102) (132) (162) (192) Available-for-sale investments 0 58 0 0 0

Other expenses (2) (1) (2) (2) (2) Books for lease 3 3 3 3 3

Operating profit 142 182 276 353 469Deposits for construction of property and land

use right3 1 1 1 1

1,437 1,660 1,812 1,896 1,969

Net finance income (14) 5 17 17 22

Listing expenses (23) (7) 0 0 0 Current assets

Other non-recurring items (57) 37 0 0 0 Inventories 0 1 2 2 2

Profit before tax 48 217 294 369 491 Available-for-sale investments 162 100 100 100 100

Income tax expense (8) (11) (22) (44) (74) Deposit, prepayment and other receivables 25 32 28 35 43

Net profit 40 206 272 325 417 Restricted bank deposits 4 0 0 0 0

Adjusted net profit 127 186 262 320 408 Bank balance and cash 380 1,022 1,294 1,740 2,207

Adjusted EPS (Rmb) 0.17 0.18 0.19 0.24 0.30 571 1,156 1,424 1,877 2,352

Growth rates (%) Total assets 2,008 2,816 3,237 3,773 4,322

Revenue 15 21 28 24 24

Adjusted net profit 21 46 41 22 28 Current liabilities

Adjusted EPS na 6 10 22 28 Deferred revenue 500 660 852 1,099 1,274

Other payables and accrued expenses 218 295 344 414 501

Margin & ratios (%) Amount due to related parties 4 0 0 0 0

Gross margin 43.5 45.7 50.4 51.7 53.0 Income tax payable 17 27 44 58 74

OP margin 26.2 27.8 33.2 34.3 36.7 Bank borrowings 224 0 0 0 0

Adjusted net margin 23.6 28.5 31.5 31.1 31.9 962 982 1,240 1,570 1,849

Effective tax rate 17.3 5.2 7.5 12.0 15.0

Payout ratio na 43.4 40.0 40.0 40.0 Non-current liabilities

Deferred tax l iabilities 19 22 22 22 22

Interest-bearing bank borrowings 0 0 0 0 0

Year-end Aug 31 (Rmb m) FY14 FY15 FY16E FY17E FY18E Others 559 0 0 0 0

578 22 22 22 22

Profit before tax 48 217 294 369 491

Depreciation and amortization 39 46 58 74 85 Equity

Net finance income 14 (5) (17) (17) (22) Shareholders' equity 467 1,812 1,975 2,181 2,451

Others 71 (18) 20 23 28

Change of working capital 145 205 244 310 254 Total liabilities & equity 2,008 2,816 3,237 3,773 4,322

Tax paid (4) (1) (17) (33) (59)

Operating cash flow 313 444 582 727 777

Year-end Aug 31 (Rmb m) FY14 FY15 FY16E FY17E FY18E

Capex (111) (212) (270) (160) (160)

Change of AFS investments (158) (3) 65 0 0 Current ratio 0.6 1.2 1.1 1.2 1.3

Acquisitions 0 (36) 0 0 0 Quick ratio 0.6 1.2 1.1 1.2 1.3

Others 3 12 1 (2) (2)

Investing cash flow (265) (240) (204) (162) (162) Asset turnover 0.3 0.2 0.3 0.3 0.3

Total assets/total equity 4.3 1.6 1.6 1.7 1.8

Change of borrowings (52) (224) 0 0 0 Net cash/(debt) (Rmb m) (316) 1,022 1,294 1,740 2,207

Interest paid (15) (4) 0 0 0

Dividend paid 0 (27) (106) (119) (148) ROE (%) 28.8 16.3 13.8 15.4 17.6

Share issue 0 750 0 0 0 ROA (%) 6.6 7.7 8.7 9.1 10.1

Others (10) (63) 0 0 0

Financing cash flow (77) 434 (106) (119) (148)

Net change of cash flow (29) 638 272 445 467

Forex changes 0 4 0 0 0

Income Statement Balance Sheet

Cash Flow Statement

Financial Ratios

May 12, 2016

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Company report

Figure 10: Top-5 international schools in China ranked by student enrollment in the 2013/2014 school year

Figure 11: Top-5 international high schools in China ranked by student enrollment in the 2013/14 school year

Sources: Ministry of Education, GF Securities (HK)

Figure 12: Breakdown of tuition fees by school segment in 1HFY16 Figure 13: Breakdown of students by school segment in 1HFY16


International school enrollments set to grow at a CAGR of 12% in 2013-17 The number of Chinese students studying overseas increased at a CAGR of 17.5% from 2007 to 2015, reaching a total of 523,700 students in 2015 (Figure 14). To allow for the difference between those heading overseas to study for the first time and those returning, according to our estimates, the number of Chinese students heading overseas for their first year of study grew at a CAGR of 24.0% from 2008 to 2015, reaching 473,000 in 2015 (number of Chinese students studying overseas for the first year, t+1 = total number of Chinese students studying overseas, t+1 – total number of Chinese students studying overseas, t + number of Chinese student returns, t+1). We believe the main reasons students choose to study overseas are the greater number of choices of top universities and curricula, the chance to gain a global vision, as well as overseas personal development and emigration opportunities. Compared to switching directly from domestic non-international schools to overseas schools, students that attend a domestic international school may find they experience a smoother transition to an overseas school, given their greater exposure to English and overseas education systems.

Maple Leaf: 7.6%Nord Anglia:

2.7% Shanghai United: 2.7%

Dulwich: 2.3%

Yew Chung: 2.2%

Others: 82.5%

Maple Leaf: 9.0%Dulwich: 2.3%

NIT Edu: 2.2%Huamei: 2.2%

Shanghai America: 2.2%

Others: 82.1%

High school57%

Middle school17%

Elementary school20%

Preschool4%

Foreign National school2%

High school39%

Middle school21%

Elementary school30%

Preschool9%

Foreign National school1%

May 12, 2016

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Company report

Figure 14: Chinese students studying overseas


According to Frost & Sullivan, revenue at international schools in China grew at a CAGR of 23% in 2009-13, reaching Rmb18.4bn in 2013. Going forward, the number of student enrollments at international schools in China is forecast to grow at a CAGR of 12% during 2013-17, reaching 244,600 in 2017. For student enrollment at international schools excluding schools solely for foreigners, the CAGR is forecast to come in at 15%, faster than the industry overall (+12%) and faster than growth in student enrollment in China’s overall combined private and public schools (+1%).

Figure 15: Revenue in the international school market in China

Sources: Frost & Sullivan, GF Securities (HK)

Figure 16: Student enrollment at international schools in China


0%

10%

20%

30%

40%

50%

60%

0

100

200

300

400

500

600

2008 2009 2010 2011 2012 2013 2014 2015

('000 students)Total number of students studying overseas (LHS)

Number of students studying overseas for the first year (LHS)

Growth of total number of students studying overseas (%) (RHS)

Growth of number of students studying overseas for the first year (%) (RHS)

8.0

10.1

12.8

15.7

18.4

4

6

8

10

12

14

16

18

20

2009 2010 2011 2012 2013

Rmb (bn)

79.1 95.5

115.2

137.2

156.5

177.4

199.8

222.2

244.6

45.5 55.5

67.2 85.0

100.6 117.8

136.3

155.4

174.9

0.0

50.0

100.0

150.0

200.0

250.0

300.0

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

('000) Total student enrollments at international schools

Total student enrollments at international schools (excluding schools for foreignersonly)

May 12, 2016

10

Company report

According to a report published in 2015 by a prominent education-focused media company (新学说

国际教育传媒), China has 597 international schools, more than any other country. A-Level/IGCSE

and AP are the two most popular curricula, followed by the IB and the Canadian program. Investment in international schools in China is set to remain strong. Property developers such as Vanke and Country Garden will expand their international school networks. It has been reported that public schools offering international curricula may be forced to become private international schools.

Figure 17: Breakdown of international-style curricula by operator


Both public and private school operators offer international curricula in China. Private schools are not administered by local, provincial or national governments, and are run by non-governmental entities or individuals where public funding is not a major source of capital. Private education has become a key growth driver in China’s education industry. Private schools have a higher level of operational independence because they do not directly operate under the administration of the government. This allows them to have a broader and more diverse curricula offering as well as greater flexibility in funding options, in terms of the tuition fees they charge and the number of English classes per week etc. As well as private international schools, certain public schools also provide international curricula for students who wish to study at universities overseas. According to a Frost & Sullivan report, total revenue generated by the Chinese private (from pre-schools to high schools) education industry grew from Rmb51.9bn in 2009 to Rmb136.9bn in 2013, equivalent to a CAGR of 27.4% (Figure 18), while the CAGR of China’s combined private and public education industry was 18.4% during the same period. According to our estimates, while the number of students studying in public schools (primary, middle and high schools) dropped at a 2.4% CAGR during 2009-14, the number of students studying in private schools climbed at a CAGR of 3.7% during the same period (Figure 20 and 21).

Figure 18: Total revenue generated by China’s private education industry

Figure 19: Per student expenditure on private education


116

225

256

0

50

100

150

200

250

300

Schools for foreigners Public schools offeringinternational curricula

Private international schools

0

20

40

60

80

100

120

140

160

2009 2010 2011 2012 2013

Rmb (bn)

0

2,000

4,000

6,000

8,000

10,000

12,000

2009 2010 2011 2012 2013

Rmb

High schools Middle schools Primary schools Preschools

May 12, 2016

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Company report

Figure 20: Student enrolment in public education Figure 21: Student enrolment in private education


Figure 22: Private school market share is increasing


0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Students

Regular high school Regular middle school Regular primary school

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Students

Regular high school Regular middle school Regular primary school

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Regular high schools Regular middle schools Regular primary schools

May 12, 2016

12

Company report

Rating definitions Benchmark: Hong Kong Hang Seng Index Time horizon: 12 months

Company ratings

Buy Stock expected to outperform benchmark by more than 15%

Accumulate Stock expected to outperform benchmark by more than 5% but not more than 15%

Hold Expected stock relative performance ranges between -5% and 5%

Underperform Stock expected to underperform benchmark by more than 5%

Sector ratings

Positive Sector expected to outperform benchmark by more than 10%

Neutral Expected sector relative performance ranges between -10% and 10%

Cautious Sector expected to underperform benchmark by more than 10%

Analyst Certification The research analyst(s) primarily responsible for the content of this research report, in whole or in part, certifies that with respect to the company or relevant securities that the analyst(s) covered in this report: (1) all of the views expressed accurately reflect his or her personal views on the company or relevant securities mentioned herein; and (2) no part of his or her remuneration was, is, or will be, directly or indirectly, in connection with his or her specific recommendations or views expressed in this research report.

Disclosure of Interests (1) The proprietary trading division of GF Securities (Hong Kong) Brokerage Limited (“GF Securities (Hong Kong)”) and/or its affiliated or associated companies do not hold any shares of the securities mentioned in this research report. (2) GF Securities (Hong Kong) and/or its affiliated or associated companies do not have any investment banking relationship with the companies mentioned in this research report in the past 12 months. (3) Neither the analyst(s) preparing this report nor his/her associate(s) serves as an officer of the company mentioned in this report and has any financial interests or hold any shares of the securities mentioned in this report.

Disclaimer This report is prepared by GF Securities (Hong Kong). It is published solely for information purpose and does not constitute an offer to buy or sell any securities or a solicitation of an offer to buy, or recommendation for investment in, any securities. The research report is intended solely for use of the clients of GF Securities (Hong Kong). The securities mentioned in the research report may not be allowed to be sold in certain jurisdictions. No action has been taken to permit the distribution of the research reports to any person in any jurisdiction that the circulation or distribution of such research report is unlawful. No representation or warranty, either express or implied, is made by GF Securities (Hong Kong) as to their accuracy and completeness of the information contained in the research report. GF Securities (Hong Kong) accepts no liability for all loss arising from the use of the materials presented in the research report, unless is excluded by applicable laws or regulations. Please be aware of the fact that investments involve risks and the price of securities may be fluctuated and therefore return may be varied, past results do not guarantee future performance. Any recommendation contained in the research report does not have regard to the specific investment objectives, financial situation and the particular needs of any individuals. The report is not to be taken in substitution for the exercise of judgment by respective recipients of the report, where necessary, recipients should obtain professional advice before making investment decisions. GF Securities (Hong Kong) may have issued, and may in the future issue, other communications that are inconsistent with, and reach different conclusions from, the information presented in the research report. The points of view, opinions and analytical methods adopted in the research report are solely expressed by the analysts but not that of GF Securities (Hong Kong) or its affiliates. The information, opinions and forecasts presented in the research report are the current opinions of the analysts as of the date appearing on this material only which may subject to change at any time without notice. The salesperson, dealer or other professionals of GF Securities (Hong Kong) may deliver opposite points of view to their clients and the proprietary trading division with respect to market commentary or dealing strategy either in writing or verbally. The proprietary trading division of GF Securities (Hong Kong) may have different investment decision which may be contrary to the opinions expressed in the research report. GF Securities (Hong Kong) or its affiliates or respective directors, officers, analysts and employees may have rights and interests in securities mentioned in the research report. Recipients should be aware of relevant disclosure of interest (if any) when reading the report. Copyright © GF Securities (Hong Kong) Brokerage Limited. Without the prior written consent obtained from GF Securities (Hong Kong) Brokerage Limited, any part of the materials contained herein should not (i) in any forms be copied or reproduced or (ii) be re-disseminated. © GF Securities (Hong Kong) Brokerage Limited. All rights reserved. 29-30/F, Li Po Chun Chambers, 189 Des Voeux Road Central, Hong Kong Tel: +852 3719 1111 Fax: +852 2907 6176 Website: http://www.gfgroup.com.hk

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maple leaf (1317 hk) · 2016. 5. 13. · maple leaf’s average annual tuition fee was much lower...

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