睿见教育(6068.HK):FY 2018 Performance beyond Expectation,New School Reserves Suff,

Investment Highlight

Our Comments:

Wisdom EDU has reached outstanding performance in FY 2018 

byimproving the utilization rate of Weifang Guangzheng Preparatory School and purchasingJieyang and Weifang Weizhou Schools. Based on the consolidation of Zhangzhou Schoolsand the opening of 5 new self-built schools in FY2019E/FY2020E, we expect company’shigh growth rate to maintain. We expect the revenues in FY2019E/FY2020E/FY2021E tobe CNY 1630M, 2027M and 2571M, up by 30.7%, 24.3% and 26.9% y-o-y. The core netprofits are estimated to be CNY 419M, 523M, and 666M, up by 30.2%, 24.8%, and 27.2%y-o-y. We maintain rating with “Ourperform”, adjusting TP to 6 HKD, representing 25X,20X, and 16X PE in FY2019E/FY2020E/FY2021E.

FY2018 performance beyond expectation:

Company has achieved revenue of CNY1247M in FY2018, up by 27.3% y-o-y, 2.5% high above our expectation. Tuition andboarding fees income and ancillary services income respectively consist 67.5% and 32.5%of the revenue. The net profit in FY2018 is CNY 307M, up by 55% y-o-y, 13.1% highabove our expectation. Core net profit amounts to CNY 322M, up by 29.6% y-o-y, 18.4%high above our expectation.

GPM decreases slightly due to school expansion; effective tax rate decreasessignificantly:

Company built new Guangan Guangzheng School by itself, purchased aschool for the representative Dongguang Guangming School, and expanded DongguanGuangzheng, Huizhou Guangzheng, Panjin Guangzheng and Weifang GuangzhengPreparatory Schools in FY2018. Expansion and purchase brought depreciation and ledGPM to decrease. However, company still maintains a higher GPM comparing to peers.Company has completed the change of nature to be “Non-profit school”. Effective tax ratedecreases significantly to 11.1%, and the low tax rate will be maintained.

The number of students steadily grows: 

Company focuses on Greater Bay Area. Amongthe 11 schools operated, 6 were located in Guangdong province, and the new schoolsopening in the future also mainly locates in Guangdong. The purchase of Jieyang andWeifang Weizhou Schools increased total student numbers to 43230 by the end of Aug, upby 36% y-o-y. With elimination of the effect of purchase, the number of total studentsamounted to 36679, up by 15.4% y-o-y. Student capacity rose to 92000 by Sep 1st, up by85.5% y-o-y. Company reversed sufficient new school sources that can lead student numberto grow steadily. We expect CAGR of student number to be 20.4% from FY2019E toFY2021E.