SUMMARY. We revised up FY19/20/21E EPS by 1%/3%/10% as we raisedaverage tuition fee and ancillary services revenue assumptions. Our TP is liftedfrom HK$4.50 to HK$5.30. We forecast Wisdom to post 24% EPS CAGR in FY20-21E, driven by 22% CAGR of revenue （14%/7% CAGR of student/ASP）。 MaintainBUY.
Upside potential on tuition fee level in FY20-21E. Guangdong provinceallowed private high schools to set tuition fees at their discretion beginning2019/20 school year. We expect Wisdom’s high schools in Dongguan toincrease tuition fees by RMB6,000/year （Guangming/Guangzheng+16%/+20%）。 We also anticipate Huizhou/Jieyang high schools to see20%/30% increase. In addition, Jieyang school got approval for 30%increase of tuition fees of primary and middle schools. Wisdom also plans toincrease tuition fees of Weifang school. We lifted ASP growth assumptionsin FY20/21E from 3.4%/5.6% to 6.1%/7.6%.
Strong ancillary services revenue growth. The 47% revenue growth in1HFY19 was stronger than our expectation due to more services offered andprice increase. Also, central government issued “Implementation measuresto accelerate the modernization of education （2018-2022）”《加快推进教育现代化实施方案（2018－2022 年）》on 23 Feb 2019 to support schools toprovide students with after school extra-curricular services. We expectWisdom to generate more services revenue from these services. We raisedFY19-21E ancillary services revenue by 14%/20%/26%.
High visibility of expansion potential. Thanks to enhanced expectedmaximum capacity of Huizhou school and Zhangpu school as well as leasingof additional land to expand capacity of planned Foshan school, totalexpected maximum capacity existing schools and planned new schoolsincreased 5% to 129,370, representing 138% of current student number of54,420. This provides Wisdom with strong organic growth potential.
Valuation. We revised up our TP from HK$4.50 to HK$5.30, based on 19xFY20E P/E （at historical average level） as we rolled forward our valuationbasis （vs 19x FY19E P/E previously）。 Catalysts: （1） better studentenrolment or tuition fee growth; （2） more new projects. Risks: （1） policy risks;（2） surge of teachers’ costs.