Hope FY21 revenue was RMB2.3bn (+48% yoy), in-line, adjusted NP after minority was RMB867mn (+51% yoy), above consensus
Reported OP appears low due to one-time independent colleges’ conversion fee, which were higher than our anticipation
Overall robust results, higher education sector remains in recovery mode from educational reforms, maintain BUY
Robust FY21 with adj. NP after minority beat
FY21 has been an eventful year for Hope, with the Group adding 6 new schools (3 universities and 3 vocational colleges), lifting its total schools in- operation to 22 schools. Total student enrollment reached 195k students for 2020/21 (+39% yoy), and reached 233k students for current 2021/22 school year (+20% yoy). Overall FY21 revenue growth was in-line, GPM had slight improvement with GP +51% yoy. Adj. NP after minority was RMB867mn (+51% yoy), beat consensus 8%. Hope declared a final dividend per share of HKD0.04, with pay-out ratio of 30%, implying 2.3% dividend yield.
FY22/23E to benefit from conversion
FY21 reported operating profit was impacted by one-time independent colleges’ conversion fees for two Guizhou schools, totalling RMB755mn (RMB490mn for Guizhou Qiannan Economic College, and RMB265mn for Guizhou Qiannan College of Science and Technology), payments will be in instalments spread over a 10-year period. Termination fees were higher than our expectation of ~RMB100mn per school. Hope has 4 more schools to be converted, of which two will need to pay termination fee, and the other two’s were included in their considerations. Hope expects remaining conversions to be completed by May 2022, and the total mgmt. fee will be reduced to c.RMB70mn in FY22E, and nil for FY23E (vs. RMB192mn in FY21).
Positive outlook with multiple drivers in play
We forecast Hope’s core NP to grow at 37% FY21-23E CAGR, driven by: 1) Solid organic enrollment growth amid policy tailwind (vocational, upgrade etc.), and Hope highlighted its partnership with industry companies like customized courses (定制班); 2) Successful conversions in FY22E to benefit to tuition fee increase and margin expansion from mgmt. fee saving; 3) 4 newly acquired schools’ full consolidation to see revenue contribution ramp up in FY22E, and margin expansion from operation improvement and financing cost reduction; 4) 4 greenfield schools; 5) Potential M&A.
BUY: Long term positive fundamentals unchanged
Hope’s results reaffirmed a recovery mode for higher education names amid policy support. We slightly revised FY22/23E core NP -1.0%/-1.3% to reflect results. We kept TP unchanged at HKD2.3, on 15x next 12-mo P/E (unchanged). Our TP implies 16x/13x FY22/23E P/E.