We expect China Education Group (CEG) would deliver a good rebound among the education plays if the equity market could deliver a sustainable rally. CEG has raised the tuition for new students by 10- 15% YoY for eight universities since this September. Thus, the blended average tuition would likely increase by 5-6% YoY in FY24E, a good support to the organic sales growth. The reform of Zhongkao would likely allow all students to attend Gaokao (University Entrance Exam), benefitting the private university segment. CEG is in the best shape among the education peers. We reiterate BUY rating.
　　Key Factors for Rating
　　CEG is the market leader while the valuation trades at deep discount to its solid fundamentals. CEG would be able to deliver 15% YoY sales and net profit growth in FY23-24, supported by the campus expansion and the tuition hike. The public universities raise the tuition, paving the way for private university to raise tuition.
　　CEG lifted the tuition of new students in eight schools by 10-15% YoY for academic year 2023-24. Thus the average tuition of the whole enrolment would likely grow by 5-6% YoY.
　　China launched the new reform to increase the quality and expand the quantity of regular high schools. In eighteen years, we expect Zhongkao would likely allocate all students to regular high school, from the current 50%. The function of Zhongkao would allocate the different regular high school resource based on the students’ academic performance. At present, only 50% students eventually attend Gaokao, and such ratio will likely increase to 100% in eighteen years.
　　That would much secure the number of candidates for private universities despite of the decline of the birth rate. Some junior colleges will likely close in eighteen years, but the good-quality bachelor-track universities under CEG would have little risk.
　　CEG holds solid cash, with the highest ability among education peers to retain the cash dividend payout.
　　Key Risks for Rating
　　We expect the education risk is not a concern in the near term, but it would be a risk if there is any policy change.
　　Valuation
　　CEG has been staying at the trough valuation, 6.36x FY23E P/E, for a while. CEG is ready to move on any market rally. Earnings growth, cash holding, cash dividend are all in good shape for CEG. Any sustainable market rally would drive CEG to lead the performance of the education sector. We reiterate BUY rating.