- November 27, 2020
We are initiating coverage of Edvantage Group (382.HK) with a Buy Rating and a Target Price of HK$9.93/sh. We believe Edvantage is operating in a regulatory sweet spot and the stock will re-rate when the private education regulation overhang is removed. Valuations remains attractive at ~17x FY21E P/E for a ~29% net profit CAGR stock, in our view.
Our full 33 pages initiation report is attached, please feel free to let us know if you would like to discuss further.
Key Highlights
- We believe Edvantage is entering a robust growth period during FY2021E-FY2023E, driven by new campus opening and profit margin expansion through royalty fee savings. We expect the company to deliver a net profit CAGR of 29% p.a. during FY20-FY23E.
- With the stock trading at ~17x FY21E P/E, we believe market remains concern with the regulatory overhang and the stock will re-rate when more clarity on the private education regulations are released.
- As of FY20, Edvantage has 35,453 students enrolled in their schools. As they ramp up their newly built Zhaoqing campus together with the Jiangmen campus in the pipeline, we expect the total capacity to exceed 60,000 over the next 3-5 years.
- The company’s strategic cooperation with Guangdong University of Finance and Economics will end during FY21E, and we expect it will result in RMB75m of cost savings per year Royalty Fees by FY24E. As a result, we expect ROE to expand to 21% by FY23E from 16% of FY20.
- We believe management has been deploying the IPO Proceeds effectively to drive growth, acquiring the Xinhui Campus site in Jiangmen in June 2020. We estimate that they would achieve a ~16% ROIC when the campus reaches its full capacity.
