Outlook 2019 Interim Results: The company will announce its FY2019 interim results as of February28, 2019 at the end of April. We expect FY2019H1 to record revenue of 820 million RMB, up 29.7%year-on-year; net profit will record 300 million RMB, up 24.2% year-on-year. The strong growth rateat the revenue side comes from the high growth of students and the increase of school fees in 8cities, and the cost pressure in this period is expected to increase. The growth of new schoolteachers in the 2017/18 school year and the 10% increase in Chinese teachers’ salary in September2018 will have an impact on the current profit margin. We expect the company's gross profit marginto be 45.7%, down 90bps, and the net interest rate will be 36.2%, down 70bps. Adding back thecompensation expense and deducting the impact of government subsidies, it is estimated that theadjusted net profit will be slightly over 300 million RMB.
Enrollments in the fall semester of 2018/19 has increased significantly. The organic extension hasbeen launched: In September 2018, the company completed two acquisitions, namely theacquisition of 7 kindergartens in Xiangyang and the Qizhong Jiade Primary and Secondary School inLuzhou, Sichuan. The acquisition of students with low age makes the company’s student structurego down, and the follow-up plan in Fuyang will facilitate the expansion of the expansion intosustained organic growth. In terms of self-construction, the company plans for the expansion of theold school in 2018/19, releasing the old campus degree of Tianjin and Chongqing, and the self-builtYancheng school. The organic growth momentum is sufficient. As of March 31, 2019, the number ofstudents of the company reached 41,380, a year-on-year increase of 38%. Excluding the 1380students from Xiangyang Kindergarten and 3,200 students from Sichuan Qizhou Middle School, theorganic growth rate reached 22.7%, maintaining a high growth rate.
Enrollment rate has reached a new high in the past years, and the teaching strength is guaranteed: Asof April 5, 2019, 100 students of the Maple Leaf 2019 high school graduates have been accepted bythe world's top ten universities, and broke the overall record of 99 in the 2018. As of March 12, allMaple Leaf's schools for small, junior, high and foreign children have been accredited by theAdvancED. In recent years, the proportion of Maple Leaf high school graduates who have passed thetop 100 universities in the world has risen from 38% in 2012 to 68% in 2018, highlighting thecompany's continuously improving quality of school.
Maintain TP HK$6.5 and maintain “Buy” rating: During the year, the company added two acquisitions.
We raise our earnings forecast. It is estimated that the company's revenue in FY2019-2021 will be1.74, 2.02 and 2.37 billion RMB respectively. The year-on-year growth was 29.5%, 16.22% and17.2%; the adjusted net profit was 0.73, 0.87 and 1.05 billion RMB, respectively, up 21.1%, 19.2%and 21.4%. Maintain the company's "Buy" rating and maintain a target price of HK$6.5, whichcorresponds to 24, 20, and 16 times PE for the 2019-2021 fiscal year, which is 52% higher than theclosing price on April 4, 2019.
Risk tips: unsatisfactory acquisition integration, changes in China's education policy; unsatisfactoryenrollment, company income comes from a few cities in China, VIE architecture policy risk.