中國教育產(chǎn)業(yè)：教育水平越高未來就越光明

1、 cGlobalResearch23 January2019Initiation of CoverageEquitiesChinaEquitiesChinaConsumer ServicesThe higher the education, the brighter the futureRobust industry growth with more opportunities for front-runnersWeinitiatecoverageofChinasprivateuniversitysectorwithapositiveview.Weexpect a 26% increase i

2、n overall university enrolment in 2017-25E in China on rising enrolment rates at higher education institutions and high schools, despite a flattish population base. We expect private universities to capture more market share, given their occupation-oriented offerings and capacity constraints at publ

3、ic universities. We expect sector revenue to double to Rmb211bn in 2025E at a 9.3% 2017-25E CAGR. Weviewtheimpactofregulatorychangesmanageableforlisteduniversityoperators, and their expansion strategy via M&As is intact. We initiate coverage of China EducationGroup(CEG)andNewHigherEducation(NHE)with

4、Buys,HopeEducation (Hope)withaNeutral,andMinshengEducation(Minsheng)withaSell.New regulation likely manageable; value has emerged post sector de-rating Announced on 10 August 2018, the draft implementation rules of the Private EducationPromotionLaw(theDraft)hasledtoaconsiderablenegativeshiftininvest

5、or sentiment. However, we do not expect the Draft to fundamentally undermine the businessmodelsandgrowthstrategiesoflistedprivateuniversitycompanies.Wehave built an HYPERLINK /shared/d2Ap5mzFiyy interactive model to help investors gauge the potential earnings impact. Our basecasesimply2-14%EPSdownsi

6、deand161-364bpincreasesinnetgearingforthe four covered companies. As they have underperformed MSCI China by 26% since10 August2018,wethinkmarketconcernaboutthenewregulationcouldbeoverdone.CEG and NHE have more solid fundamentalsCEG stands out on our HYPERLINK l _bookmark2 score card with top-tier gr

7、owth prospects, balance sheet strengthandcapitalreturns.NHEranksaclosesecond.WebelieveCEGandNHEare less impacted by the Draft. Hopes unique focus on organic growth is margin-dilutive, butwethinkitispricedin.WethinkMinshenghasthemostmarginpressureduetoits relianceonsubsidyandrisingfinancingcostsfromt

8、heM&AofDianchiCollege.but are undervalued and thus are our top picksCEG/NHE/Hope/Minshengaretradingat0.30 x/0.29x/0.25x/0.62x2019EPEG(FY20E for CEG). We see alpha in this mismatch with their ranking on fundamentals. We expectthefinalisationoftheDrafttoremovearegulatoryoverhangandwheninvestors refocu

9、sonfundamentals,CEGandNHEhavethepotentialtore-rateandoutperform.Figure 1: Valuations for higher education companies under our coverageEdwin Chen,CFA HYPERLINK mailto:edwin.chen edwin.chen+86-105-8328186Felix HYPERLINK mailto:felix-a.liu +86-213-8668850CompanynameTickerUBS-S Price Target Price Mkt ca

10、p30-dADV PEPB EPS CAGR PEG Netgearing EV/EBITDA Rating(LC) (USD m) (USDm) FY1EFY2EFY3EFY1E (FY0-FY3E)FY1EFY1EFY2EFY3EChinaEducation Group0839.HKBuy14.0010.642,7394.919.3x14.1x12.0 x2.7x46.8%0.30 x-6%13.8x10.7x8.5xNew Higher Education2001.HKBuy5.003.766861.615.8x11.1x8.4x2.1x38.3%0.29x14%11.4x7.5x6.0

11、 xHope Education1765.HKNeutral0.940.837051.716.2x11.2x9.1x1.2x45.1%0.25x14%9.3x6.8x6.7xMinsheng Education1569.HKSell1.211.397120.416.1x12.5x11.2x1.3x20.0%0.62x12%13.2x9.2x7.8xNote: Above data as at the close of 22 January 2019. Source: Company data, Thomson Reuters, UBS-S estimates HYPERLINK / This

12、report has been prepared by UBS Securities Co. Limited.ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ONPAGE116. UBSdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshouldbe aware that the firm may have a conflict of interest that could affect the objectivity

13、 of this report. Investors should consider this report as only a single factor in making their investment decision.ContentsOURTHESISINPICTURES4 HYPERLINK l _TOC_250009 Investmentcase6 HYPERLINK l _TOC_250008 Companyscorecard6 HYPERLINK l _TOC_250007 Keyregulatorychange:theDraft7PIVOTALQUESTIONS8Q:Is

14、therefurtherupsidepotentialtoChinashighereducationenrolment?8 HYPERLINK l _TOC_250006 Q: Can private universities outgrow the overall higher education sector in China?12 HYPERLINK l _TOC_250005 Q: How could the upcoming regulatory changes alter the sectors margin/returnprofile?21WHATSPRICEDIN?29 HYP

15、ERLINK l _TOC_250004 Company Pages37 HYPERLINK l _TOC_250003 ChinaEducationGroup38 HYPERLINK l _TOC_250002 China NewHigherEducation60 HYPERLINK l _TOC_250001 HopeEducationGroup77 HYPERLINK l _TOC_250000 MinshengEducationGroup97Edwin Chen,CFA HYPERLINK mailto:edwin.chen edwin.chen+86-105-8328186Felix

16、 HYPERLINK mailto:felix-a.liu +86-213-8668850China Education SectorMAP a guide to our thinking and whats where in this report HYPERLINK l _bookmark1 OURTHESISINPICTURESMOSTFAVOUREDLEAST FAVOUREDCEG,NHEMinshengPIVOTALQUESTIONSQ:IstherefurtherupsidepotentialtoChinashighereducationenrolment?Yes.Weexpec

17、ta3%CAGRinChinashighereducationannualenrolmentover2018-25E,despite a flattish population base, driven by a rising gross enrolment rate for higher education and an expanding high school student base. HYPERLINK l _bookmark3 moreQ: Can private universities outgrow the overall higher education sector in

18、 China?Yes,weestimatestudentenrolmentatprivateuniversitiestoincreaseata4.2%2018-25ECAGR, capturing more of the sectors growth potential, given supply constraints at public universities. In addition, we think private universities occupational focus, which usually results in better job prospects, make

19、s them competitive in securing enrolment. We expect a 42% 2018-20E revenue CAGRforourfourcoveredcompanies,astheyarealsolikelytobenefitfromsectorconsolidation. HYPERLINK l _bookmark7 moreQ: How could the upcoming regulatory changes alter the sectors margin/return profile? We think the Draft will not

20、fundamentally undermine the business models of private university operators.Instead,theimpactislikelytobefinancial.IftheDraftcomesintoeffectimmediately,weestimate2-14%downsidetoourFY19NPestimatesforCEG/NHE/Hope/Minsheng.WehighlightMinsheng as having the most EPS downside potential, due to its high e

21、xposure to subsidies, and Hope as facing the most pressure on cash flow, due to its high exposure to subsidised land. HYPERLINK l _bookmark17 moreUBS-SVIEWWe think Chinas pursuit of a broader higher education base could present more opportunities to privateuniversities,givensupplyconstraintsatpublic

22、universities.Besidesthepositivesectorgrowth outlook,weexpectstrongergrowthduetoconsolidationtobenefitlisteduniversityoperatorsalso, as they leverage their balance sheet strength and school management expertise. We view the impactoftheDraftasmanageableandbelievemarketreactionisoverdone.WehighlightCEG

23、and NHEasourtopsectorpicks,giventheirstrongfundamentalsandattractivevaluations.EVIDENCEThe Ministry of Education (MoE) and the China Association of Higher Education target 50%/60% higher education gross enrolment rates in 2025F/30F, up from 46% in 2017. Government funding forhighereducationperstuden

24、thasbeenfallingandmoreconcentratedattoppublicuniversities, implyingsupplyconstraintsatpublicuniversitiestomeetrisingdemand;wethinkprivateuniversities are well positioned. Our sensitivity analysis suggests the Draft could bring 2-14% earnings downside,whichismanageable,inourview(stocksaredown26%relat

25、ivetoMSCIChinasincethe Draft announcement).WHATSPRICEDIN?We think the market is overly concerned about potential negative impact of the Draft. We think CEGandNHEarenotproperlyrewardedfortheirstrongerfundamentals. HYPERLINK l _bookmark20 13.3%11.9%13.3%11.9%Higher education sector revenue(LHS) YoY(RH

26、S)10.6%10.0%9.7% 10.3% 9.8%8.7%7.7%7.8% 7.9%8.6%6.4%7.5% 7.1%103.7 111.7 120.5 132.6143.9 157.9 174.1191.1 211.464.669.677.982.989.195.42502001501005002011 2012 2013 2014 2015 2016 2017 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025ESource: MoE, China Association of Higher Education, Wind, Euromonit

27、or, Frost & Sullivan, UBS, UBS-S estimates14%12%10%8%6%4%2%0%ChinaEducationSectorUBS-SResearchOURTHESISINPICTURES HYPERLINK l _bookmark0 return Population aged 18-22E in China (m)11210611210696918884 838079 78 77 77 78 77 781008060Despite headwind in populationbase4020020112013201520172019E2021E2023

28、E2025EUniversity and junior college enrolment and gross enrolmentrateUndergraduate and junior college enrolments (LHS)GrossUndergraduate and junior college enrolments (LHS)Grossenrolmentrate(RHS)57%59%46%35%27%30%34 3523 24 25 25 2627 28 28 29 30 31 32 33403530252015105020112013201520172019E 2021E 2

29、023E 2025E70%60%50%40%30%20%10%0%we think overall student enrolment at universities and junior colleges could increase by 26% from 2017 to 2025E CAGR, as the enrolment rate improvesPrivate univeristy enrolment andpenetrationStudentStudentpopulationat2018-25E CAGR:4.9%private universities (LHS) Priva

30、te university penetration (RHS)7.0 7.5 7.88.2 8.79.1 9.55.1 5.35.6 5.9 6.16.3 6.5 6.827%27%26%26%25%25%24%24%22%22%23%23%23%24%24%10864230%28%26%24%22%We expect private universities to increase penetration and capture more of the sectors growth potential than public universities020112013201520172019

31、E2021E2023E20%9,040-5.9%9,040-5.9%8,506Governmental funding per student (Rmb)8,0006,0004,000as we think public universities are not well-funded to satisfy the rising demand for higher education2,000020122017Relative performance vs MSCI China, since the annoucement of the Draft on 10 August 20180%-10

32、%-20%-30%-40%-50%-60%-7%-38%-53%-8%Regulation has been a major concernthe four major operators have underperformed MSCI China by 26% on average since Draft announcementCEGNHEHopeMinshengNP and net gearing impact from the DraftFY19 net gearing impact FY19 net profit impact-2.1%209bps364bps-4.9%334bps

33、0%-4%However, we expect the Drafts impact to be mostly200bps-7.7%161bps-8%financially, rather than fundamental, and manageable100bps-12%-13.5%0bps876543210CEGNHEHopeMinshengOur score card on company fundamentalsCEGNHEHope-16%OurscorecardsuggestsCEGandNHEhavemoresolid fundamentalsFY2E PEG0.25x0.29x0.

34、25x0.29x0.30 x0.48x0.62x0.30.2but they are trading below-average valuations; we highlight CEG and NHE as our top picks with Buy ratings0.10.0CEGNHEHopeMinshengPrivatehighereducation sectorSources for exhibits above: MoE, Wind, Euromonitor, Frost and Sullivan (F&S), UBS-S estimatesInvestment caseWe i

35、nitiate coverage of the China private higher education sector with a positive view. We think private universities are in a good position to capture Chinas growing demand for higher education, with capacity constraints at public universities. We think the Draft could have some negative impact on comp

36、any earnings and cash flow, but we think market reaction is overdone, with the share prices underperforming MSCI China by 26% on average since the Draft announcement.Figure 2: Overview of covered companies and investment casesCompanyCodeRatingBusiness modelCore regionsInvestment caseChina0839.HKBuyT

37、hefourcoveredJiangxi, Guangdong, Henan, Shaanxi, ShandongWe think CEG has the best fundamentals among the listed Chinese private university operators, with the highest top/bottom line growth potential and asset return, as it has the healthiest balance sheet in the sector, good school locations andas

38、trongmanagementteam.Webelieveitisalsorelativelylessimpactedbythe Draft. At below-average PEG, we find its valuationattractive.Educationcompanies are leading(CEG)privateuniversityoperators in China. Onaverage, they earn overChina New2001.HKBuy90% of their revenueYunnan, Guizhou, Heilongjiang, Hubei,

39、Henan, Gansu, GuangxiWe think NHE is a high-quality company oversold. It ranks a close second on our fundamentals score card, with solid growth and asset return profile, and could be the least impacted by the Draft, in our view. We think the market is overly concernedaboutthehighgearingexposedinitsH

40、118results.Asthenewschools in its M&A pipeline (NHE has already paid for most) are consolidated and start to bringincashflow,itsgearinglevelshouldcomedowntoareasonablelevel.Tradingat sub-par PE and PEG, we find its valuation attractive as well.Higherfrom tuition fees andEducationthe remaining mostly

41、(NHE)from boarding fees.They tend to expandthrough a mix oforganically establishingHope1765.HKNeutralnewuniversities,Sichuan, Guizhou, Guangdong, Chongqing, GansuWe are positive on Hopes enrolment/revenue growth prospects, powered by its self-build + M&A strategy, but we are cautious about its margi

42、n given limited operating leverage from self-built schools at the beginning stage. We also expect the Draft to add further burden to its balance sheet/cash flow, which is already under pressure from its heavy capex plans. Trading at a large discount to the industry average, its valuation is fair, in

43、 our view.Educationexpanding capacities at(Hope)existing universities andacquiring other privateuniversities.Minsheng1569.HKSellChongqing, Inner Mongolia, Shandong, Anhui, Yunnan, HebeiMinshenghasbeenoneofthebest-performingstocksinthesector,andweexpect downside risk to such optimism. We think its he

44、avy reliance on subsidies from Chongqing could lead to margin pressure, as it expands to regions with lower subsidies. We think the large amount of debt that Minsheng will take on from the Dianchi College acquisition and related financing costs could catch the market by surprise. It is also the most

45、 impacted by the Draft, in our view. It is trading at apremium to the rest of the sector, a valuation we find demanding.Education(Minsheng)Source: UBS-S estimatesCompany score cardWe produce a score card to gauge the fundamental prospects of our covered companies.Thescorecardfactorsingrowthpotential

46、,marginlevelandtrajectory, balancesheethealth,assetreturn,locationandexposuretotheDraft.We highlight CEG as having the best fundamentals overall (scores 8.2 out of 10), with top-tier growth prospects, balance sheet strength and capital returns.NHE ranks a close second at 7.3. High gearing is its rel

47、ative weakness, but we thinkitsgearingisontracktoimprove,asnewlyconsolidatedschoolscouldbring strongcashinflow.BothCEGandNHEarerelativelylessimpactedbytheDraft,in our view.Hopesheavyemphasisonorganicgrowthhasledtoitsrelativelyweakermargin, top line growth and asset return, but we think its NPM could

48、 pick up strongly asit pays off debt and lowers financing costs with IPOproceeds.We think Minsheng faces the heaviest margin pressure due to its reliance on governmentsubsidiesandrisingfinancingcostsfromtheM&AofDianchiCollege. HopeandMinshengarealsomoresusceptibletoimpactoftheDraft,inourview.Figure

49、3: Score card on company fundamentalsOverallRevenue CAGR NP CAGRNPMNPM changeNetcashNetgearingROAROELocation NPexposureGearing exposurescoreFY18-20EFY18-20E FY18E* overFY17-20EFY18EFY18EFY18E FY18Etheto the DraftCEG NHEHopeMinsheng8.255.9%46.8%43.0%-1305bps1,611.5-26.2% 10.3%14.7%6.6-7.7%209bps7.348

50、.3%38.3%52.7%-958bps(266.3)13.8%8.5%16.1%5.9-2.1%161bps5.726.8%45.1%28.7%1137bps298.5-8.4%4.2%14.1%6.6-4.9%364bps3.936.1%20.0%51.5%-1655bps (397.0)11.9%7.1%9.5%5.4-13.5%334bps*WeuseFY19ENPMforCEGtoadjustforfinancialyear-enddifference.Methodologyforthescorecard:werankthe4companiesoneachoftheabovemetr

51、ics:1st placewillearnascoreof10;2ndplace7.5;3rdplace5;4thplace2.5.Theoverallscoreisasimpleaverageofthescoreineachofthemetrics.Source: Wind, MoE, Company data, UBS-S estimates.Key regulatory change: the DraftTheDraftisthemostchangetothesectorWe think the key consequence for the higher sector is that

52、listed private operators now need to their schools as “for profit” to stay totheDraft(nearlyallinChinaarecurrentlyoperatingasnot- TheindustryistheDrafttobeimplementedaroundWe think the impact from changing to for-profit will mostly likely be on the following fronts:Tax: Currently, no corporate incom

53、e tax is paid at the school level. After declaringfor-profit,schoolsmayneedtopayupto25%corporateincometax.Government subsidy: We expect the government to provide less or even no subsidy to for-profit schools. We think Minsheng could be the most impacted by this, given its high exposure tosubsidies.L

54、andcost:Previously,thegovernmentofferedsomediscountedlandtoprivate universities. After declaring for-profit, the universities may be required to pay backthedifferenceinlandprices.Hopeismostexposedtothis,inourview.Tuition fee: After declaring for-profit, private universities will have more freedom in

55、 adjusting tuition fees. We could expect some operators to raise tuition fees to pass on higher costs.Refertoour HYPERLINK l _bookmark18 thirdpivotalquestionforadetailedanalysisofpotentialimpactofthe Draft.ChinaEducationSectorUBS-SResearchPIVOTALQUESTIONS HYPERLINK l _bookmark0 return Q: Is there fu

56、rther upside potential to Chinas higher education enrolment?UBS-S VIEWYes. We expect a 3% CAGR in Chinas higher education annual enrolment over2018-25E,despiteashrinking18-22agegroupinChina.Wethinkupside couldcomefrom:1)arisinggrossenrolmentrateforhighereducation;and2) an expanding high school stude

57、nt base.Weestimatethenumberofundergraduateandjuniorcollegeenrolmentinthe population aged 18-22 to increase from 28m in 2017 to 35m in 2025E, implyinga3%CAGR,versusan-0.8%CAGRoverthesameperiod.EVIDENCEIn 2017, the gross enrolment ratio for higher education was 45.7% in China,laggingtheaverageofupper-

58、middleincomecountriesof51%and developedcountries64-94%,accordingtotheMoEandUNESCO HYPERLINK l _bookmark4 (Figure HYPERLINK l _bookmark4 6). The MoE and the China Association of Higher Education target 50% and 60% gross enrolment ratios for higher education by 2020 and 2030, respectively. This sugges

59、ts further room forupside.Although the number of middle school graduates has been declining in China since 2005, the number of new admissions to high schools has been largely stable at 8.0m p.a., due to more middle school students choosing high schools over vocationalschools.From 2004 to 2017, the p

60、ercentage of middle school graduates going to high schools went up from 38% to 57%, supporting the higher education studentbase,andwebelievethereispotentialforhighschoolpenetration to further increase.Potential 26% enrolment upside by 2025E, overcoming headwind in population baseThepopulationbasefor