【Sector Research】China Education Sector – CMBI Virtual Corporate Day takeaways

We hosted CMBI Education Virtual Corporate Day with 11 HK-listed companies last week. Overall, admission quotas of higher education companies in 2020-21 school year saw decent growth (15-64%), except Huali University. Degree quotas (excl. diploma to degree) of private universities in Guangdong unexpectedly dropped this year, particularly independent colleges. We believe this is an one-off impact as Guangdong’s gross enrollment rate is far below advanced provinces and will continue to rise. Looking into FY21E NP consensus, we think Kepei, New Higher Education and China Education have upside potential, while Huali University has downside risk. Hope Education remains our sector top pick.

  

  • Admission quotas saw 15-64% growth. Higher education sector is boosted by policies of increasing number of students admitted by diploma to degree program and vocational colleges. For the five companies released quotas figures, Kepei led the growth with 64%, followed by China Education (+27%), Minsheng (+17%) and Edvantage (+15%). However, quotas of Huali Education unexpectedly fell 12%. Hope Education saw 100-260% growth for its three newly acquired colleges, 30-35% growth for two universities in Guizhou, and 30%+ growth in self-admission quotas for its seven vocational colleges. New Higher Education’s growth of degree quotas was impressively stronger than diploma (Figure 1).

 

  • Independent colleges in Guangdong suffered. According to Kepei’s management, certain degree quotas of private universities (particularly independent colleges) in Guangdong were allocated to new public universities in 2020-21 school year. The drop of degree quotas (excl. diploma to degree) of the independent colleges of Edvantage and Huali University was greater than Kepei’s university. That said, management thinks this is an one-off impact. Quotas of private universities in Guangdong will increase given that Guangdong’s higher education enrollment rate (46%+) is still lower than advanced provinces like Jiangsu, Zhejiang and Shandong (>50%). Quotas of independent colleges could recover after unpeg.

 

  • Upside/downside potential of consensus. We think the consensus NP estimates of Kepei, New Higher Education and China Education in FY21E could be underestimated. On the contrary, we think there is downside risk on the consensus NP estimate of Huali Education in FY21E. For Hope Education, we think the quota growth figures released so far are encouraging. For Minsheng Education, we think there is significant upside in FY21E NP if two potential catalysts (complete of sponsor change of Nanchang College and complete conversion of Pass College) can be materialized. 
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