SUMMARY. After an update with management, we revise up FY20/21E net profitby 3% and TP from HK$5.30 to HK$5.40. Trading at 0.66x PEG in FY19E, theCompany’s valuation is below sector’s average of 0.79x. Maintain BUY.
Update on tuition fees in 2019/20 school year. Dongguan Guangming andGuangzheng schools will lift high school tuition and boarding fees by19%/42%, respectively, to RMB43,800 per year. Jieyang JiedongGuangzheng and Weifang Guangzheng also will increase their tuition andboarding fees by 29-32% and 22-24%, respectively 。 On the otherhand, tuition and boarding fees at Huizhou school remain unchanged in2019/20 school year. We assume 15% increase at Huizhou school in2020/21 school year （last adjustment of tuition fees of primary and middleschools was done in 2017/18 school year）。 We keep our ASP growthassumption at 6% in FY20E and raise ASP growth in FY21E from 8% to 9%.
Huizhou school delivered outstanding “Zhongkao” results. Twostudents from Huizhou school （the third largest school of the Company interms of student number） achieved the top two highest “Zhongkao” score inHuizhou, Guangdong this year. We think this should boost studentadmission in 2019/20 school year. To recap, three high school graduatesfrom Huizhou school were admitted to Tsinghua University and PekingUniversity in 2017, number of students in Huizhou school increased by 2,108in 2017/18 school year （vs increase of 1,403 students in 2016/17 schoolyear）。 We lift number of student estimates by 1% to 62,516 in FY20E and71,388 in FY21E.
Strong organic growth potential. The stock trades at 17.5x FY19E P/E or0.66x PEG （vs 26% EPS CAGR in FY20-21E）， lower than sector’s averageof 0.79x. We think Wisdom Education has strong organic growth potentialahead given that its expected maximum capacity of existing schools andpipeline projects is 129,370, representing 107% of our estimated studentnumber of 62,516 in FY20E.
Valuation. We lift FY20E and FY21E net profit estimates by 3%. Our TP isincreased from HK$5.30 to HK$5.40, still based on 19x FY20E P/E （athistorical average level）。 Catalysts: （1） better student enrolment or tuitionfee growth; （2） more new projects. Risks: （1） policy risks; （2） surge ofteachers’ costs.