According to a research report published by UBS, the revenue and operating profit performance of China Education Holdings in the first half of fiscal year 2024 was better than expected, but the net profit performance was slightly lower than expected. The bank said that China Education Holdings's student enrollment increased by 8.5% and revenue per student increased by 9%, driving the company's revenue for the first half of this year to increase 18% year-on-year, 3% higher than the bank's and market expectations. As for the 16% increase in operating profit, which is higher than the bank's and market expectations of 5% and 1%, respectively, this also means that operating profit margins have shrunk by 100 basis points year-on-year.
UBS also anticipates that China Education Holdings will generate a cumulative operating cash flow of 11 billion yuan in the future, which is enough to cover the company's capital expenses, and will also use the remaining capital for dividend distribution. In view of China Education Holdings' performance growth and further capacity expansion in the first half of this year, the bank raised the company's revenue forecast for the 2024-2026 fiscal year by 1% to 2%; increased its operating profit forecast by 3% to 5% for the same period, reflecting the company's better operating leverage and higher government subsidies; and increased its net profit forecast by 2% to 4%, based on the company's active business development, offset by higher taxes and minority shareholders' rights.
Based on the above factors, UBS lowered the target price of China Education Holdings from HK$8.4 to HK$7.8. This is equivalent to predicting a price-earnings ratio of 9 times this year, maintaining a “buy” rating.