China Maple Leaf reported 1HFY19E revenue of Rmb744m （+17.8% YoY） and recurring net profit ofRmb304m （+25% YoY）。 The results are in line with our expectations. Given sluggish demand for highschool education, we anticipate slower price increases in the next two years. As a result, we revisedown our EPS forecasts from Rmb0.25 to Rmb0.19 in FY19E （flat YoY）， from Rmb0.34 to Rmb0.23 inFY20E （+21.1% YoY）， and from Rmb0.43 to Rmb0.27 in FY21E （+17.4% YoY）。 We lower our target pricefrom HK$7.76 to HK$5.52 and, with 36.6% upside, maintain our BUY recommendation.
　　Structural changes. Revenue from the high school segment decreased by 3.4% YoY, indicating weakenrolments in 1H19 （total enrolments of 7,898; -9.2% YoY）。 High school enrolments accounted for22% of the total, down 8.8ppts from a year ago. We note students that apply for the 2018-19 highschool year were born in 2003, when China was suffering from the severe acute respiratory syndrome（SARS） epidemic. A significant birth rate drop happened that year, especially in regions where MapleLeaf operates high schools. We find the average birth rate decrease was 0.13ppts or 12.9% from theprevious five years’ average, causing the total number of students applying for high school for the2018-19 school year to be less than normal.
　　Brand enhancement. The company disclosed that 106 students among its 2,120 graduates in thissummer have already been admitted to top-10 overseas universities, indicating the excellence ratio（the percentage of students admitted to top-10 universities worldwide） exceeded that of last year by5% at c.4%. As more graduates may receive offering letters, we expect the excellence ratio tocontinue to rise and thus enhance the firm’s brand awareness.
　　Temporary margin pressure. Increasing teacher salaries and decreasing revenue contribution fromthe high-margin high school business led the company’s margin to decrease in FY19. We believeteacher salaries will be stable in the coming one to two years as the company adjusts teacher benefitsevery three years. We expect high school recruitments to recover and increase revenue contribution,thus enhancing the firm’s margin. We expect gross margin to decrease from 46.5% in FY18 to 46% inFY19E, and recover to 48.2% in FY20E and 48.9% in FY21E.
　　Maintain BUY. Given sluggish demand for high school education, we anticipate slower price increasesin the next two years. As a result, we revise down our EPS forecasts from Rmb0.25 to Rmb0.19 inFY19E （flat YoY）， from Rmb0.34 to Rmb0.23 in FY20E （+21.1% YoY）， and from Rmb0.43 to Rmb0.27 inFY21E （+17.4% YoY）。 We lower our target price from HK$7.76 to HK$5.52 and, with 36.6% upside,maintain our BUY recommendation.