30 November 2018 Hong Kong
EQUITIES Hope Education (1765 HK)
1765 HK Outperform Robust organic growth with accretive M&A Price (at 14:02, 28 Nov 2018 GMT) HK$1.29
Valuation HK$ 1.57 Key points - DCF (WACC 12.0%, ERP 12.0%) Initiate with OP rating and HK$1.57 TP. 12-month target HK$ 1.57 Upside/Downside % +21.7 Robust organic growth with 14% enrolment CAGR and 5% ASP CAGR in 2018-21E with plans to add two schools in Gansu and Chongqing. 12-month TSR % +21.7 Proven history of accretive M&A shows potential for further M&A. GICS sector Consumer Services
Market cap HK$m 8,600 Market cap US$m 1,098 Initiate with OP and TP at HK$1.57 Free float % 22 30-day avg turnover US$m 2.0 We initiate coverage on Hope Education with an Outperform rating. Our DCF- Number shares on issue m 6,667 based target price is HK$1.57, implying an FY19 P/E of 15x and upside of 22%. Strong capacity ramp-up and new school openings should lead to an estimated Investment fundamentals 15% CAGR in enrolment and a 5% CAGR in ASP in 2018-21E. Meanwhile, the Year end 31 Dec 2017A 2018E 2019E 2020E accretive M&A strategy has a proven track record to expand Hope Education’s Revenue m 752.4 1,026.3 1,294.0 1,558.4 EBIT m 401.2 437.6 607.6 742.6 national school network and enhance the profitability of the newly acquired EBIT growth % 68.9 9.1 38.8 22.2 schools. Reported profit m 233.1 303.9 451.5 550.6 EPS rep Rmb 0.05 0.06 0.09 0.11 Hope Education is currently the second largest Chinese Higher Education service EPS rep growth % 49.5 29.6 48.6 22.0 provider listed on the HK stock exchange with ~74k student enrolments in 2017. EPS adj Rmb 0.05 0.06 0.09 0.11 The company has a track record of M&A, having consolidated five schools before EPS adj growth % 49.5 29.6 48.6 22.0 PER rep x 24.3 18.8 12.6 10.4 its IPO on 3 August 2018 and will be included as a constituent stock in the MSCI PER adj x 24.3 18.8 12.6 10.4 China Small Cap Index on 1 Dec 2018. Total DPS Rmb 0.00 0.00 0.00 0.00 ROA % 7.9 6.5 7.4 8.2 Strong school portfolio with robust organic growth ROE % 41.9 13.7 11.2 12.2 EV/EBITDA x 7.4 6.9 5.2 4.4 Hope Education currently operates eight schools in Sichuan, Guizhou and
Source: FactSet, Macquarie Research, November 2018 Shanxi. The company adopts a centralized management business model to (all figures in Rmb unless noted, TP in HKD) efficiently expand the school capacity and student enrolment. The organic
capacity growth rates reached 17.9%, 12.8%, and 19.1% yoy in 2015, 2016, and 2017 respectively and the total capacity reached 95,776 under an improved utilization rate of 80.8% in 2017/2018, which reflected the improved brand Macquarie Governance and Risk Score (MGRS) On our proprietary Governance and Risk Score Hope recognition among students. The company is also trying to upgrade the education Education scores in the third quartile of our current level in the existing schools and introduce more value-added services to boost its universe coverage. ASP.
Two new schools + accretive acquisitions to fuel expansion In November 2018, Hope Education announced two investments, in addition to its Guangdong new school plan, to establish new schools in Gansu and Chongqing, which will start accepting enrolments in 2H19 and 2H20, respectively. The company has acquired five schools so far and has a unique M&A strategy, in that: Analysts 1) it focuses on schools with majors that have large market demand; 2) it prefers Macquarie Capital Limited
John Wang +852 3922 3578 schools with potential to ramp up capacity efficiently; 3) it prefers deals that can [email protected] be closed quickly. We observed the consistent successful progress when Hope Education took over the acquired schools and expect that the company continues Wendy Huang, CFA +852 3922 3378 [email protected] to acquire and integrate new targets in an effective manner.
Frank Chen +852 3922 1433 Risks [email protected] Hope Education is ranked in the 3nd Quartile on Macquarie’s MGRS. Risks Marcus Yang +86 21 2412 9087 [email protected] include additional compliance costs from regulatory uncertainty, increased competition for M&A, and operational risks such as capacity ramp-up and student Ellie Jiang +852 3922 4110 [email protected] recruitment.
Please refer to page 26 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures.
Macquarie Research Hope Education (1765 HK)
Inside Company profile
Hope Education is the second largest private higher education group in China Investment Summary 3 in terms of total enrolment as of December 2017. The company provides Valuation, recommendation, risks 4 higher education services, including bachelor’s degree programme and junior college diploma programme, other educational services, self-study Strong school portfolio with robust organic examination education services, adult education, and technical education growth 8 services.
Two schools + accretive acquisitions The company operates eight schools in the PRC, including three independent to fuel expansion 15 colleges: Southwest Jiaotong University Hope college, Business College of Detailed Financial Data 20 Guizhou University of Finance and Economics, and Jinci College of Shanxi Medical University; one university: Sichuan Tianyi College; four junior colleges: Appendices 23 Sichuan Hope Automotive Vocational College, Sichuan Vocational College of
Culture & Communication, Guizhou Vocational Institute of Technology, Sichuan TOP IT Vocational Institute; and one technician college: Sichuan Revenue, Net Profit, and OPM Forecast Hope Automotive Technician College with total enrolment of 86,561 students as of 1H18. It owns a sophisticated centralized management model, with 2000 60% headquarters managing logistics, supply and service procurement and 1500 infrastructure construction at each school. 40% 1000 Hope Education went public on 3 Aug 2018, and raised about HK$3.1bn in net 20% proceeds. The company plans to deploy 40% for future school and land 500 acquisitions, 30% for capex on new buildings, 20% to repay debts, and 10% 0 0% for working capital and general corporate purposes. Hope Education will be 2016 2017 2018E 2019E 2020E 2021E included as a constituent stock in MSCI China Small Cap Index on 1 Dec Revenue (Rmb mn) Net Profit (Rmb mn) 2018. OPM (%) Source: Company data, Macquarie Research, Nov. 2018 Fig 1 Enrolment and ASP estimates for Hope Education
160000 14500 140000 14000 120000 13500 100000 13000 80000 12500 60000 12000 40000 11500 20000 11000 0 10500 2016 2017 2018E 2019E 2020E 2021E Enrolment ASP(Rmb)
Source: Company data, Macquarie Research, November 2018
Fig 2 1765 HK rel HSI performance, & rec history
Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, November 2018 (all figures in Rmb unless noted, TP in HKD)
30 November 2018 2
Macquarie Research Hope Education (1765 HK)
Investment Summary DCF valuation suggests an equity value of HK$7.8bn Our DCF analysis derives an equity fair value of HK$7.8bn for Hope Education, based on 1.0x beta, WACC of 12.0%, and terminal growth rate of 3%. Hope Education is adopting efficient strategies for both robust organic growth and accretive M&A for long term growth. The company has a track record of successful M&A deals dating back to 2011. It has also achieved sustainable robust organic growth in capacity as well as enrolments. Our DCF-based fair value of HK$1.57 implies a 15x P/E and represents 22% upside to the current share price. Second largest private higher education provider with robust capex capability and accretive expansion strategies Hope Education exhibits strong managerial capabilities to achieve robust capacity expansion. The organic capacity growth rate reached 17.9%, 12.8%, 19.1% yoy in 2015, 2016, 2017 respectively excluding the impact from M&A and the total dormitory housing capacity reached 95,776 in 2017/2018, while the utilization rate increased from 75.2% in 2014/2015 to 80.8% in 2017/2018. The company also signed two more new schools in Gansu and Chongqing in Nov. 2018 in addition to its Guangdong school to strength the geographic presence. Meanwhile, on the M&A side, since 2011, Hope Education has made five acquisitions and successfully ramped up the capacity and enrolment for the existing schools and the acquired schools. We estimate the M&A momentum will continue with additional 1-2 deals per year, which will provide a 10-20% incremental revenue and enrolment. Scenario analysis suggests a 12-month fair value of HK$0.97-1.95 Due to the uncertainty of the future M&A and the impact from regulation, we performed a scenario analysis on Hope Education. We assumed a bull case and a bear case to deduce the DCF-based valuation of the company. In the bull case, we assumed a 5% higher enrolment and a 3% higher mixed ASP from the base case, whereas in the bear case, we assumed a 5% lower enrolment and a 3% lower mixed ASP from the base case. The DCF model suggested a HK$1.95 share price for the bull case and a HK$0.97 share price for the bear case. (Fig 8)
Fig 3 Hope Education Valuations
2.5 1.95 2.0
1.5 1.57 1.0 0.97 0.5
0.0
Stock price Bull case Bear case Base case
Source: Company data, Macquarie Research, November 2018
30 November 2018 3 Macquarie Research Hope Education (1765 HK)
Valuation, recommendation, risks Valuation and Recommendations
Fig 4 DCF validation
YE Dec 31 (RMB mn) 2018E 2019E 2020E 2021E 2022E 2023E Free Cash Flow (264) 164 426 599 597 670 EBIT * (1-t) 341 454 553 676 747 832 + D&A 106 117 126 131 135 140 + Capex & Inv estments (487) (453) (312) (283) (304) (332) + (Inc) / dec in NWC (224) 46 59 75 19 30 NPV of FCF (261) 145 336 421 375 376 Base-case WACC DCF Valuation (RMB mn) : Risk Free Rate 3.0% Total NPV of forecast 1,392 Equity Risk premium 12.0% Terminal EBITDA 1,119 Beta 1.0 Terminal EBITDA Multiple 7 x Cost of common equity 15.0% Terminal Value 7,421 After tax cost of debt 5.1% NPV of Terminal v alue 4,162 Debt/Total Capital (Steady State): TV : EV 74.9% % Common Equity 70% Less: net debt + MI - 2018E -1,238 % of debt 30% DCF-based Fair Value WACC 12.0% Equity v alue (RMB mn) 6,791 Terminal FCFF = 597 Equity v alue (HKD mn) 7,810 Implied Perpetual Grow th Rate 3.0% Per Share (HKD) 1.57
DCF MATRIX Hypothetical DCF-Based Fair Value (HKD) Ex it Multiple 4x 5x 6x 7x 8x 9x 10x WACC 9% 1.15 1.32 1.48 1.65 1.82 1.98 2.15 10% 1.11 1.27 1.43 1.59 1.75 1.91 2.07 11% 1.08 1.23 1.38 1.54 1.69 1.84 1.99 12% 1.13 1.28 1.42 1.57 1.71 1.86 2.00 13% 1.02 1.16 1.29 1.43 1.57 1.71 1.85 14% 0.99 1.12 1.25 1.39 1.52 1.65 1.78 15% 0.96 1.09 1.21 1.34 1.47 1.59 1.72 NPV of Forecast FCF (HKD mn) 2018E 2019E 2020E 2021E 2022E 2023E FCF -264 164 426 599 597 670 WACC 9% -262 149 356 458 419 432 1,120 10% -261 148 349 445 404 412 1,084 11% -261 146 342 433 389 393 1,049 12% -261 145 336 421 375 376 1,392 13% -261 143 330 410 361 359 984 14% -261 142 324 399 349 343 953 15% -260 141 318 388 336 329 923 Terminal value as EBITDA multiple (HKD mn) Ex it Multiple 4x 5x 6x 7x 8x 9x 10x WACC 9% 2,618 3,338 4,058 4,779 5,499 6,220 6,940 10% 2,499 3,186 3,874 4,562 5,249 5,937 6,625 11% 2,386 3,043 3,700 4,356 5,013 5,670 6,327 12% 2,280 2,907 3,535 4,162 4,789 5,417 6,044 13% 2,179 2,779 3,378 3,978 4,578 5,177 5,777 14% 2,083 2,657 3,230 3,804 4,377 4,950 5,524 15% 1,993 2,541 3,090 3,638 4,187 4,735 5,284 Implied non-GAAP PER (2019E) Ex it Multiple 4x 5x 6x 7x 8x 9x 10x WACC 9% 11.2x 12.8x 14.4x 16.0x 17.6x 19.3x 20.9x 10% 10.8x 12.4x 13.9x 15.5x 17.0x 18.5x 20.1x 11% 10.5x 12.0x 13.4x 14.9x 16.4x 17.9x 19.3x 12% 11.0x 12.4x 13.8x 15.2x 16.7x 18.1x 19.5x 13% 9.9x 11.2x 12.6x 13.9x 15.3x 16.6x 18.0x 14% 9.6x 10.9x 12.2x 13.5x 14.7x 16.0x 17.3x 15% 9.3x 10.6x 11.8x 13.0x 14.3x 15.5x 16.7x Source: Company data, Macquarie Research, November 2018
30 November 2018 4 Macquarie Research Hope Education (1765 HK)
DCF Valuation We performed a DCF analysis on Hope Education using a risk free rate of 3.0%, equity risk premium of 10%, beta of 1.0, cost of debt of 6%, long term tax rate of 25%, and target equity/debt ratio of 80%/20%. The DCF model suggests a total valuation of HK$8.5bn and a share price of HK$1.82. Hope Education has a limited history of public listing. Since its IPO in August 2018, it is trading at an average 12mo forward PE ratio of 14x with a range of 12.3-23.6x. Currently, the stock is trading at the relative bottom in terms of forward PE ratio.
Fig 5 Hope Education 12-month Forward PE Ratio
30.0 25.0 20.0 15.0 10.0 5.0 0.0
12-month forward PE - 1 s.d. Median + 1 s.d.
Source: Company data, Macquarie Research, November 2018
Financial Analysis We estimate that the top line will show a 20% CAGR in 2018-21E with the existing school portfolio, which consists of a 14.6% CAGR contribution from the enrolment increase and a 5.0% CAGR contribution from the ASP expansion. We expect the overall gross profit margin to improve from 47.8% in 2017 to 55.5% in 2021, as the utilization rate gradually enhances. Meanwhile, the operating profit margin will expand faster than the gross margin from 30.5% in 2017 to 42.1% in 2021E, as the centralized management business model controls the S&GA cost.
Fig 6 Hope Education Revenue Growth Forecast Fig 7 Hope Education Margin Forecast
2000 50% 60.0% 55.5% 52.2% 53.8% 50.4% 51.2% 1800 45% 47.8% 50.0% 1600 40% 1400 35% 40.0% 42.1% 1200 30% 40.3% 38.1% 1000 25% 30.0% 34.2% 800 20% 30.5% 20.0% 26.1% 600 15% 400 10% 10.0% 200 5% 0 0% 0.0% 2016 2017 2018E 2019E 2020E 2021E 2016 2017 2018E 2019E 2020E 2021E
Revenue(Rmb mn) YoY Growth GPM OPM
Source: Company data, Macquarie Research, November 2018 Source: Company data, Macquarie Research, November 2018
30 November 2018 5 Macquarie Research Hope Education (1765 HK)
Hope Education also enjoys common advantages of the higher education sector with solid positive operating cash flow and deferred revenue from tuition paid upfront. The received cash, which is denominated in Rmb, can facilitate M&A as well as help repay bank loan interest. In 2017, the company generated a total of Rmb601m in operating cash flow and spent Rmb1,110m in capex. We believe cash flow will continue to grow, as enrolment and ASP continue to increase.
Scenario Analysis
Fig 8 Scenario Analysis – DCF model
Scenario analysis RMB 000s 2018E 2019E 2020E 2021E 2022E 2023E Base case Student number 63,181 89,157 103,957 118,457 134,257 138,257 145,857 yoy 41% 17% 14% 13% 3% 5% Blended ASP 12.1 12.4 13.2 14.1 14.7 15.2
Base case revenue 1,082,627 1,294,050 1,558,400 1,887,908 2,026,148 2,212,251 Bear case Student number 5% less 85,998 99,499 113,259 128,334 131,544 138,944 Blended ASP 3% less 12.1 12.1 12.1 12.8 13.3 13.8 Bear case revenue 1,044,266 1,201,402 1,370,817 1,642,206 1,754,272 1,917,736 Bull case Student number 5% higher 92,316 108,415 123,655 140,180 144,970 152,770 Blended ASP 3% higher 12.5 12.8 13.6 14.5 15.1 15.6 Bull case revenue 1,154,616 1,390,027 1,675,586 2,030,331 2,188,260 2,386,613
Free Cash Flow Base case (263,636) 163,714 426,126 598,521 596,587 670,085 Free Cash Flow Bear case (301,996) 71,066 238,543 352,818 324,711 375,570 Free Cash Flow Bull case (191,646) 259,691 543,312 740,943 758,699 844,447
PV of FCF Base -260,942 144,641 336,054 421,324 374,866 375,836 PV of FCF Bear -298,910 62,786 188,121 248,363 204,032 210,649 PV of FCF Bull -189,688 229,436 428,470 521,581 476,729 473,631 Cash flow projection RMB 000s 2018 2019 2020 2021 2022 2023 WACC: DCF Valuation Base Bear Bull Risk Free Rate 3.0% Sum of PV of FCF 1,391,778 615,042 1,940,159 Market Risk Premium 12.0% PV of Terminal Value 4,162,077 2,332,765 5,245,086 Equity Beta 1 Enterprise Value 5,553,855 2,947,807 7,185,245 Cost of Equity 15.00% Less: Net Debt (2018E) -1,237,559 -1,237,559 -1,237,559 Cost of Debt (Pre-tax) 6.0% Equity Value (RMB'000) 6,791,414 4,185,366 8,422,804 Cost of Debt (After tax) 5.1% Terminal as % total 75% 79% 73% Target Debt w eight 30% CNYHKD exchange rate 1.15 1.15 1.15 Target Equity w eight 70% Equity Value (HKDm) 7,810 4,813 9,686 Tax Rate 15% # of shares 4,975 4,975 4,975 WACC 12.0% Valuation HKD 1.57 HKD 0.97 HKD 1.95 Terminal Grow th 3.0% Implied PER (19E) 15 9 19 Source: Company data, Macquarie Research, November 2018
30 November 2018 6 Macquarie Research Hope Education (1765 HK)
Risks Hope Education is ranked in the 3rd Quartile on Macquarie’s MGRS. Regulatory uncertainties. Currently, the Implementation Regulation of the Law for Promoting Private Education (IRLPPE) is under review. This regulation sets the guideline for both government and market participants. Even though the final version has not yet been released, the intention behind the 2016 version of the Law for Promoting Private Education (LPPE) was to separate the for-profit and non-profit higher education institutes and to tighten the regulations for the for-profit higher education service providers. Hope Education is a for-profit higher education group, and hence may see the following impacts on its operation: Tax. Hope Education paid effective tax rates of 5.5%, 2.8% and 8.6% in 2015, 2016 and 2017, respectively. We estimate the rate may increase to 15%, due to the location of its schools and for-profit status after the grace period given by different provincial governments.
Land. Currently Hope Education owns ~1.3m sq.m of land through government allocation. We estimate a one-off Rmb65m fee needed to convert the allocation land use right to the leasing rights, which may decrease its short term liquidity and increase amortization cost moderately in the long term.
Government grant. Hope Education received government grant of Rmb7m, 10m and 17m in 2015, 2016 and 2017, respectively. Due to the regulation change, the per-student government grant may be discontinued.
Utility cost. For-profit schools may also receive a discount on utility expenses, according to the draft version of IRLPPE, which may reduce the COGS of the company.
Other aspects, including related party transactions, licences and registration may introduce additional compliance cost. Increased competition in M&A. Since a number of higher education companies have listed in the last 2-3 years, Hope may face intensified competition in M&A. We may see the valuation for target schools increase over time due to competition. Thus, the M&A momentum may slow. Operational risks. The company faces multiple risks at operational level including:
Management transition after acquisition. The company has successfully improved the metrics of newly acquired schools, but it still bears the risk of management transition after an acquisition.
Capacity ramp-up. On the one hand, the enrolment quota is controlled by the government and the company may face the risk of not getting enough enrolment quota. On the other hand, the campus can be a limiting factor to ramp up capacity, thus inability to acquire more land from the government could limit the capacity ramp-up.
Student recruitment. Even though the quality of higher education needs to improve and demand is still increasing, the failure to accommodate the changes in the job market may lead to difficulties of recruiting new students.
30 November 2018 7 Macquarie Research Hope Education (1765 HK)
Strong school portfolio with robust organic growth Hope Education is the second largest private higher education provider in China in terms of enrolments as of December 2017, according to Frost & Sullivan. The company provides higher education, including bachelor’s degree programme, junior college diploma programme, other educational services, self-study examination education services, adult education and technical education services.
Fig 9 Market share of leading private higher education players in China by enrolment, 2017 Company Market share Number of students enrolled
China Education 1.14% 76k Hope Education 1.10% 74k China New Higher Education 0.9% 58k Minsheng Education 0.6% 41k Xinhua Education 0.5% 34k Others 96% 6,408k Source: Frost & Sullivan, Macquarie research, June 2018
Fig 10 Key Assumptions 2016 2017 2018E 2019E 2020E 2021E
Total Enrolment 51,672 63,181 89,157 103,957 118,457 134,257 Southwest Jiaotong University Hope college 14,550 15,136 17,136 19,636 20,636 21,636 Business College of Guizhou University of Finance and Economics 10,642 14,360 14,460 14,960 15,260 15,560 Jinci College of Shanxi Medical University 3,621 4,801 7,101 9,401 11,401 13,401 Sichuan Tianyi University 10,716 11,797 13,597 15,897 17,897 19,897 Sichuan Hope Automotive Vocational College 3,642 4,579 5,679 7,679 9,679 11,679 Sichuan Vocational College of Culture & Communication 5,959 7,383 8,683 9,883 12,183 14,483 Guizhou Vocational Institute of Technology 1,177 2,998 5,498 6,998 7,998 8,998 Sichuan TOP IT Vocational Institute - - 13,376 14,176 14,676 15,176 Sichuan Hope Automotive Technician College 2,127 3,627 4,327 5,127 5,927 Gansu School - - 1,000 2,000 3,500 Chongqing School - - - 800 2,000 Guangdong School - - - 800 2,000
Blended ASP(Rmb) 11,890 11,909 12,143 12,448 13,156 14,062 Tuitions Southwest Jiaotong University Hope college 12,949 13,285 13,550 13,821 14,651 15,530 Business College of Guizhou University of Finance and Economics 9,727 10,215 11,952 11,988 12,707 13,469 Jinci College of Shanxi Medical University 12,065 12,664 12,917 13,886 15,552 17,418 Sichuan Tianyi University 7,816 8,073 8,557 8,943 10,105 11,419 Sichuan Hope Automotive Vocational College 9,331 7,067 7,774 8,396 8,731 9,081 Sichuan Vocational College of Culture & Communication 7,394 8,342 8,926 9,131 9,450 9,781 Guizhou Vocational Institute of Technology 2,804 6,155 6,278 6,404 6,724 7,060 Sichuan TOP IT Vocational Institute - - 10,000 10,200 10,404 10,612 Sichuan Hope Automotive Technician College 1,142 2,110 3,376 3,882 4,465 5,135 Gansu School - - 10,000 10,500 11,025 11,576 Chongqing School - - - 12,000 12,600 13,230 Guangdong School - - - 10,000 10,500 11,025 Source: Company data, Macquarie Research, November 2018
The company currently operates eight schools in the PRC, including Southwest Jiaotong University Hope College (西南交通大学希望学院) established in April 2009, Business College of Guizhou University of Finance and Economics (贵州财经大学商务学院) acquired in April 2014, Jinci College of Shanxi Medical University (山西医科大学晋祠学院) acquired in April 2014, Sichuan Tianyi University (民办四川天一学院) acquired in September 2011, Sichuan Hope Automotive Vocational College (四川希望汽车职业学院) established in June 2013, Sichuan Vocational College of Culture & Communication (四川文化传媒职业学院) acquired in March 2014, Guizhou Vocational Institute of Technology (贵州应用技术职业学院) established in June 2016, Sichuan TOP IT Vocational Institute (四川托普信息职业学院) acquired in December 2017.
30 November 2018 8 Macquarie Research Hope Education (1765 HK)
Fig 11 Hope Education network
Source: Company data, Macquarie Research, November 2018
Hope Education’s school network has expanded into three provinces, with total enrolment of 86,561 students, including 74k students for higher education, 2k students for technical education and 11k students for other educational services.
Efficient capacity expansion strategy leads to fast growth in student enrolment Hope Education has established a centralized model to consistently improve: 1) the management of its schools; 2) the quality of education at its schools; and 3) the capacity ramp-up, and teacher and student recruitment.
Rapid upgrades in capacity Hope Education saw enrolment of 48,976 students in 2014-15, 57,766 students in 2015-16 (capacity growth of 17.9%), 69,893 in 2016-17 (12.8%) and 95,776 students in 2017-18 (19.1%). This capacity growth excludes the impact of M&A. We believe the capacity ramp-up will gather speed with ongoing and planned expansions: The Sichuan Tianyi University and Guizhou Vocational Institute of Technology complexes are being expanded to boost capacity. The company also plans to construct more buildings for the Jinci College of Shanxi Medical University, Southwest Jiaotong University Hope College and Sichuan Vocational College of Culture & Communication. Hope Education expects to continue increasing teaching staff, the number of subject majors and curriculum to enlarge scale and improve utilization rate of the schools.
30 November 2018 9 Macquarie Research Hope Education (1765 HK)
Fig 12 Historical capacities for Hope Education’s schools 120000
100000 12557 80000 4720 9152 4720 60000 5000 11222 5728 12480 3449 17521 32354000 40000 17275 16349 7614 18499 3206 3206 8924 11794 16646 20000 44742808 15960 19184 16344 16344 0 2014/2015 2015/2016 2016/2017 2017/2018 Southwest Jiaotong Univ. Hope College Business College of Guizhou Univ. of Finance and Economics Jinci College of Shanxi Medical Univ. Sichuan Tianyi College Sichuan Hope Automotive Vocational College Sichuan Vocational College of Culture & Communication Guizhou Vocational Institute of Technology Sichuan TOP IT Vocational Institute Source: Company data, Macquarie Research, November 2018
Utilization rate is consistently improving While Hope Education is increasing the campus capacity of its schools, it is also improving the student recruitment process. The company has established a centralized student recruitment management department to provide guidance to individual schools on the national and local student recruitment policies, share recruiting experience among schools, and train student recruitment teams to improve their efficiency. For example, in the 2013-14 academic year, one year after Sichuan Tianyi College was acquired, the enrolment reached 10,635, up 43% YoY from 7,450 when the company took over the school in 2012. Thus, despite an aggressive doubling of capacity over 2014-17, the utilization of schools has improved from 75.2% in 2014-15, to 76.3% in 2015-16, to 79.2% 2016-17 and 80.8% in 2017-18.
Fig 13 Historical capacity and utilization rate for Hope Education
120000 80.8% 82.0% 95776 81.0% 100000 79.2% 80.0% 79.0% 80000 69893 78.0% 57766 60000 48976 77.0% 75.2% 76.0% 40000 76.3% 75.0% 74.0% 20000 73.0% 0 72.0% 2014/2015 2015/2016 2016/2017 2017/2018
Overall Capacity Overall Utilization Rate
Source: Company data, Macquarie Research, November 2018
30 November 2018 10 Macquarie Research Hope Education (1765 HK)
High placement and student retention rates show quality of education According to Frost & Sullivan, the China higher education industry’s average first-time employment rate was 78.4%, whereas Hope Education reports an average placement rate of 90%. Considering the placement rate as a key measurement of teaching quality, the school formulates employment- oriented training courses, requires students to intern full-time for their last semesters, and encourages students to obtain vocational qualification certificates. With a centralized management model, Hope Education is able to share its educational and career resources across the board to enhance overall post-graduate results. The placement rates from Hope Education’s schools are encouraging because. By 2017, Hope Education had entered into school-enterprise collaboration agreements with over 500 enterprises and other institutions. The company established collaborations with several leading and well- regarded enterprises and organizations in different industries, including transportation, civil aviation and healthcare. For junior college programmes, Hope Education has opened focused courses, established laboratories and simulation training for students. Two examples are indicated below:
Fig 14 Placement rate for Southwest Jiaotong University Hope College Fig 15 Placement rate for Schools of Hope Education
100.0% 120.0% 98.5% 98.7% 97.5% 94.8% 94.7% 96.8% 98.0% 100.0% 93.9% 90.2% 94.0% 95.9% 96.2% 81.9% 79.6% 95.3% 77.9% 96.0% 80.0% 93.6% 94.0% 60.0% 91.2% 92.0% 40.0% 90.0% 89.4% 20.0% 88.0% 0.0% 86.0% 2014/2015 2015/2016 2016/2017
84.0% Jinci College of Shanxi Medical Univ. 2014/2015 2015/2016 2016/2017 Sichuan Tianyi College Bachelor's degree program Junior college diploma program Overall Sichuan Vocational College of Culture & Communication
Source: Company data, Macquarie Research, November 2018 Source: Company data, Macquarie Research, November 2018
Southwest Jiaotong University Hope College holds a stable relationship with multiple large corporates, including Chengdu Railway Department and JD, which provides internship and employment opportunities for graduates. By December 2017, the school has established over 180 cooperation projects with business institutions. The placement rate for Southwest Jiaotong University Hope College records at 95.2%, 95.7% and 96.2% from 2015-2017.
The Jinci College of Shanxi Medical University emphasizes combinations of academic courses and practical experience. Until Dec 2017, the school was working closely with more than 40 hospitals in China to provide students more employment opportunities. Another metric to measure the quality of the education as well as the general student commitment to the program is the student retention rate. For the school years of 2014/2015, 2015/2016, 2016/2017 and 2017/2018, the retention rate of students amounted to 99.7%, 99.4%, 99.7% and 99.8%, respectively.
Upgrades in education level and special programmes to provide ASP hike potential The company increases fees charged to students to reflect the increase in its operating costs, improvements of its facilities and the changes in the market price for higher education. Over 2014- 2017, the company has kept a relatively stable tuition fee with only minor adjustments to a few schools.
Starting from September 2018, the company has obtained approvals and plans to increase tuition fee level for Sichuan Tianyi University, Sichuan Vocational College of Culture & Communications and Sichuan Hope Automotive Vocational College
30 November 2018 11 Macquarie Research Hope Education (1765 HK)
Hope Education is currently expanding the campuses of two schools and plans to expand the campuses of three more schools. A scaled capacity will likely bring more potential for tuition and boarding fees, driven by an increased number of student enrolments.
Upgrades in education level for existing school portfolio Hope Education is working on upgrading the level of education at some schools. Sichuan Tianyi University is currently applying to upgrade from junior college to university. The application has been included in the “13th Five-Year Plan” of Sichuan education development by Sichuan Education Commission. We expect a capacity increase of 10k for Sichuan Tianyi University upon the approval of the application, and project tuition fee income to increase by 25% by 2020E. Meanwhile, according to the newest draft version of Implementation Regulation of the Law for Promoting Private Education, the independent colleges will detach from the sponsoring public universities. In this case, the three independent colleges that Hope Education operates will become solely responsible on setting the tuition fees and boarding fees. Thus, the ASP potentials can be unlocked.
Specialized programmes help students to succeed in their career Hope Education has utilized its educational network to develop specialized programs to fit in students and enterprises’ needs. Programmes are listed below:
Simulation training programmes are designed and constructed to provide an enterprise-like simulated training environment and implement task-based simulation training programs, to ensure the seamless connection between academic studies and work requirements. Over 50% of major-related courses at Southwest Jiaotong University Hope College are taught in the form of workplace simulation training. Southwest Jiaotong University runs a rail transportation simulation training base in which students majoring in urban rail transportation can practice driving the subway in a simulated subway cabin with a 4D tunnel-simulation screen ahead and operate the control system used in railway stations. Sichuan
International education cooperation programmes aim to provide students with opportunities to study abroad, improving their international horizon and employment competitiveness. Southwest Jiaotong University Hope College currently holds cooperation agreement with University of Southern Queensland, Universal United New Zealand, and Vistula University.
Junior college-undergraduate program allows students who obtained junior college diplomas and passed the examination formulated by Sichuan Department of Education, to be admitted by universities for their bachelor’s degree program for an additional two years of study.
Other value-added education services to capture additional market opportunities Self-study Examination Education is open to anyone who wants to pursue higher education without any restrictions in admission, with candidates choosing their desired school, major and level. Credentials are accumulated overtime. During 2014-2017 school year, Hope Education has provided self-study examination service to over 13k students.
Adult Education is offered to qualified adults who achieve the required score in the nationally administered entrance examination. Upon completion of the program in three years, a junior college diploma is awarded. During 2014-2017 school year, Hope Education provided adult education service to around 26k students.
Secondary Vocational Education is provided by Guizhou Vocational Institute of Technology with 953 students under enrolment during 2017/2018. In order to focus on higher education sector, Hope Education plans to cease secondary vocational education enrolment in 2018/2019 and discontinue following graduation of current students.
Technical Education. Sichuan Hope Automotive Technician College, started enrolment in September 2017, provides education training of professional skills primarily related to the automobile industry. Students will receive graduation certificates issued by the Ministry of Human Resources and Social Security upon completion. Students will generally take national professional qualification examination (国家职业资格考试) to obtain a technician-level certificate. Currently Sichuan Hope Automotive Technician College has a total 2127 students under enrolment.
30 November 2018 12 Macquarie Research Hope Education (1765 HK)
Online Teaching Platform. Hope Education provide our students access to online learning through online platforms operated by licensed third parties at Southwest Jiaotong University Hope College, Sichuan Vocational College of Culture & Communication, Guizhou Vocational Institute of Technology and Sichuan Tianyi College. To encourage students’ after-class learning, Guizhou Vocational Institute of Technology offers non-credit online MOOC courses taught by professors from reputable undergraduate institutions on its school website with a wide range of topics including automobile chassis maintenance, automobile insurance, organic chemistry, financial management, micro economics and nursing.
Cost optimization to improve margin In 2017, three major costs in the COGS are staff costs, management fees, and depreciation/amortization cost, contributing 21.3%, 12.3%, and 11.5% as percentages of revenues respectively.
Fig 16 Costs breakdown forecast of Hope Education 2015 2016 2017 2018E 2019E 2020E
Staff cost 89185 115143 160064 240596 292695 342809 Depreciation and 62474 74342 86421 93611 104159 111270 amortization Management fees 60272 72659 92688 126422 150508 178156 Utilities 6773 7589 9379 12793 15230 18027 Rental fees 6851 16839 19788 26990 32132 30406 Other costs 14635 18110 24065 27692 20079 20716 Cost as % of Revenue Staff costs 18.3% 18.7% 21.3% 22.2% 22.7% 22.5% Depreciation and 12.8% 12.1% 11.5% 8.6% 8.1% 7.3% amortization Management fees 12.4% 11.8% 12.3% 11.7% 11.7% 11.7% Utilities 1.4% 1.2% 1.2% 1.2% 1.2% 1.2% Rental fees 1.4% 2.7% 2.6% 2.5% 2.5% 2.0% Other costs 3.0% 2.9% 3.2% 2.6% 1.6% 1.4% Total costs 49.3% 49.6% 52.2% 48.8% 47.7% 46.0% Source: Company data, Macquarie Research, November 2018
Staff costs contributed 38%, 38%, 41% of the COGS and 18%, 19%, 21% of total revenue in 2015, 2016, and 2017 respectively. Since the applicable regulation requires the student to teacher ratio may not exceed 18:1 for comprehensive higher education institutions and finance and business higher education institutions, and the student to teacher ratio may not exceed 16:1 for medical higher education institutions, we expect that the staff cost will gradually increase as a percentage of revenue until 2019.
Fig 17 Historical student to teacher ratio for schools of Hope Education
25 22 22 21 21 20 19 20 18 18 17 15 15 15 15 15 14 14 14 15 13 13 13 12 11 9 9 9 9 10 8
5
0 2014/2015 2015/2016 2016/2017 2017/2018
Southwest Jiaotong Univ. Hope College Business College of Guizhou Univ. of F&E Jinci College of Shanxi Medical Univ. Sichuan Tianyi College Sichuan Hope Automotive Vocational College Sichuan Vocational College of Cul. & Comm. Guizhou Vocational Institute of Technology Sichuan TOP IT Vocational Institute Source: Company data, Macquarie Research, November 2018
30 November 2018 13 Macquarie Research Hope Education (1765 HK)
Management fees are the branding fees from three independent colleges to their sponsoring universities. Specifically, Southwest Jiaotong University Hope College pays a 15% of the tuition fees to the Southwest Jiaotong University, Business College of Guizhou University of Finance and Economics pays 30% of the tuition fees to Guizhou University of Finance and Economics, while Jinci College of Shanxi Medical University pays 20% of the tuition fees to the Shanxi Medical University. We believe this cost will slightly decrease as the percentage of enrolment of the independent colleges will gradually decline.
Fig 18 Forecast on staff cost of Hope Education
450 60% 50% 400 48% 49% 46% 50% 350 41% 37% 38% 300 40% 250 30% 200 21% 22% 23% 23% 22% 18% 19% 150 20% 100 10% 50 0 0% 2015 2016 2017 2018E 2019E 2020E 2021E
Staff Cost %COGS %Rev
Source: Company data, Macquarie Research, November 2018
Overall, we believe the gross margin will bottom out in 2017 as the utilization rate is still improving and the depreciation/amortization cost will be continue to decline over the next several years. For the operating costs, Hope Education was able to cut its selling and administrative expenses during 2015-2017 from 18.7% to 15.7% of total revenue. The company has established a centralized management model that covers logistics, supply and service procurement and infrastructure constructions of each school, including a unified intelligent campus information system among all schools. This centralized model would enable Hope Education to control operation costs while reducing operating risks. The company also owns an education management committee, aiming to provide supervision and expertise in education and school operations at a broader level. We expect the centralized operation model to be further enhanced and cut SG&A expenses to 13% by 2020E.
30 November 2018 14 Macquarie Research Hope Education (1765 HK)
Two schools + accretive acquisitions to fuel expansion Hope Education has penetrated regions where there is a large school-age population of higher education but the demand for higher education is underserved. Beginning 2011, Hope Education completed the acquisition of six schools successfully (one separated in September 2017). The company plans to further increase the school numbers and improve market share in existing provinces, seeking opportunities in provinces with underserved demand for private higher education and high growth potential.
Two Investments for Opening New Schools after IPO Hope Education intends to leverage its operations and resources to further expand its school network in China. The company has recently announced two investment deals to open two additional new schools in Chongqing and Gansu in addition to previously announced Guangdong Schools. On 15 November 2018, Hope Education announced to invest a new school in Zhongxian County of Chongqing. This school is expected to cost Rmb1.5bn and accommodate 10,000 students. The company has already signed an agreement with the local government and is expected to acquire 335k sq.m of land for campus, 184k sq.m of land for residential purpose, and 75k sq.m of land for parks and recreational purpose. The Chongqing School will focus on training professionals within the eSport industry and is expected to start enrolling student by 2H20. On 21 November 2018, Hope Education announced another investment plan to build a new school in Baiyin District of Baiyin City in Gansu province. The Gansu school is expected to cost Rmb1.3bn and accommodate 12,000 full-time students. The company has already signed agreement with the local government and expects to acquire 533k sq.m of land for campus and 200k sq.m of land for ancillary residential purpose. The Gansu School will focus on training professional workers in a diverse array of disciplines and is expected to start enrolling student by 2H19.
Fig 19 Three new school plans Chongqing School Gansu School Guangdong School
Date Announced Nov. 15th 2018 Nov. 21st 2018 May-18 School Location Zhongxian County, Baiyin City, Gansu Province Xinfeng County, Shaoguan Chongqing City, Guangdong Province Start Enrolment 2H20 2H19 2H20 Estimated Capacity 10,000 12,000 10,000 Education Focus eSport Industry Professional workers Agriculture-focused higher education Area of land 595k sq.m 733k sq.m n.a. Investment Rmb1.5bn Rmb1.3bn Rmb1.2bn Source: Company data, Macquarie Research, November 2018
In May 2018, Hope Education entered into an agreement with the government of Xinfeng County People’s Government, Guangdong Province, which allows the company to establish the Guangdong Agricultural Science and Technology Vocational College, a school for modern agriculture-focused higher education, in Shaoguan, Guangdong Province. The relevant government approvals are expected to be obtained by 2020. Management expects the school will start enrolling students upon the completion of the first phase construction and should have 10,000 students by 2020. We believe opening these three schools will help Hope Education in three ways: 1) expand into a nationwide school network with operations outside of their headquarters in the Sichuan province, 2) leverage their existing operating experiences to schools with a new education focus such as eSport and agriculture, 3) drive growth with limited M&A potential due to a high gearing ratio.
30 November 2018 15 Macquarie Research Hope Education (1765 HK)
Most acquisitions consolidated before IPO Hope Education owns a professional acquisition team with expertise in the industry. The company has strong acquisition track record as listed in the following table.
Fig 20 Historical acquisitions Acquired time School
2011 Sichuan Tianyi University 2014 Sichuan Vocational College of Culture & Communication 2014 Jinci College of Shanxi Medical University 2014 Business College of Guizhou University of Finance and Economics 2017 Sichuan TOP IT Vocational Institute Source: Company data, Macquarie Research, November 2018
We found the M&A strategy of Hope Education quite unique from its competitors: 1) it focuses on schools with subject-majors that have large market demand and corresponding to national industrial policies, such as healthcare, rail transportation and pre-school education, 2) it prefers to acquire universities that award bachelor’s degrees, and will particularly consider the possibility that the target school can become a university, 3) it has the longest history of carrying out M&A operations which can be dated back to 2011,
4) It has a successful history of ramping up capacity of the newly acquired schools in an efficient manner.
Fig 21 Enrolment 3-yr change post acquisition
3 years post acquisition 10635 5959 3621
Original enrolment 7450 3060 2438
0 5000 10000 15000 20000 25000
Sichuan Tianyi College Sichuan Vocational College of Culture & Communication Jinci College of Shanxi Medical University
Source: Company data, Macquarie Research June 2018
Hope Education focuses on realizing rapid growth for acquired schools. The average acquisition approval takes seven months to complete, and it usually takes 8-11 months to build campus and begin operations. The company provides incentives and career development prospects to ensure the stability of the teaching staff. Sichuan Tianyi University’s total enrolment has grown from 9,563 from 2015/2016 school year to 11,797 students in December 2017, up by 23.4%. Sichuan Vocational College of Culture and Communication almost doubled its students from 3909 in 2015/2016 school year to 7383 in December 2017. Shanxi Medical University Jinci College’s enrolment also grew from 2635 in 2015/2016 school year to 4801 students in December 2017.
30 November 2018 16 Macquarie Research Hope Education (1765 HK)
Sichuan Tianyi University, is a formal higher education institution founded in 1991 and acquired by the company in September 2011. Shanghai Shurui Consulting Limited, company’s wholly owned subsidiary is the sole sponsor of Sichuan Tianyi University. Sichuan Tianyi University achieved Rmb139.7m revenue in 2017 and an enrolment about 11,785 in 2017/2018 academic year. The tuition fees for the school has increased from Rmb5,800-11,000 in 2014/2015 to Rmb8,000-12,000 in 2017/2018. As the construction of the new buildings completed in June 2018, we estimate the capacity will ramp up to a total of 25,000 students and the utilization rate will improve gradually as more program and degree can be offered there. The school’s top five majors in terms of enrolment were nursing, accounting, project cost management, marketing and automobile use and maintenance. The total number of students enrolled in such top five majors accounted for 90.3% of the total number of student enrolment. In addition, the school has one course, namely Preparation and Establishment of Micro and Small Enterprises has been recognized as a “provincial-level high-quality curricular” by Sichuan Department of Education.
Fig 22 Enrolment forecast for Sichuan Tianyi University Fig 23 Historical tuition fees for Sichuan Tianyi University
20000 14000 17600 18000 12000 12000 12000 15600 12000 16000 11000 13600 14000 11785 10000 12000 10716 10136 9563 10000 8000 8000 8000 8000 6000 6000 4000 5800 5800 4000 2000
0 2000
0 2014/2015 2015/2016 2016/2017 2017/2018 Source: Company data, Macquarie Research, November 2018 Source: Company data, Macquarie Research, November 2018
Sichuan Tianyi University also cooperates with Southwest Jiaotong University Hope College, Yibin College, and Sichuan Normal University to provide junior college-undergraduate program to further strengthen their education service quality. As a result, the initial employment rate of the graduates achieved 93.9%, 94.9%, and 96.8% in 2015, 2016, and 2017 respectively. Sichuan Vocational College of Culture & Communication, a formal higher education institution providing junior college education founded in 2005. Hope Education acquired 100% of the equity interest in the school in March 2014. Originally located in Chongzhou city in Sichuan, the school of leased part of Sichuan Tianyi University’s campus in Mianzhu to accommodate its increasing student enrolment. For the 2017/2018 school year, Sichuan Vocational College of Culture & Communication had a total of 7,379 students enrolled in junior college diploma program and 505 teaching staff. It offers 27 majors granting junior college diplomas and the top five majors in terms of student enrolment were pre-school education, building interior design, music performance, art education and e- commerce.
30 November 2018 17 Macquarie Research Hope Education (1765 HK)
Fig 24 Enrolment forecast for Sichuan Vocational College Fig 25 Historical tuition fees for Sichuan Vocational of Culture & Communication College of Culture & Communication
14000 14000 12183 12000 12000 12000 12000 12000 12000 9883 10000 8683 10000 8000 7379 5959 8000 6000 3909 6000 7000 7000 7000 7000 4000 3015
2000 4000
0 2000
0 2014/2015 2015/2016 2016/2017 2017/2018
Source: Company data, Macquarie Research, November 2018 Source: Company data, Macquarie Research, November 2018
Sichuan Vocational College of Culture & Communication is trying to collaborate with Sichuan Airlines for the aviation service major and to provide students with on-site practical training and diverse internship programs. As a result, the initial employment rate of the graduates achieved 90.2%, 94.7%, and 94.0% in 2015, 2016, and 2017 respectively. Jinci College of Shanxi Medical University, is a private and independent university founded in 2002. It received approval from the MOE to operate the school as an independent college in 2004. The school was acquired by company in April 2014 and the MOE has approved the company to be the co-sponsor with Shanxi Medical University. The company agreed to pay 20% of annual tuition to Shanxi Medical University from 2014/2015 academic year. Jinci College of Shanxi Medical University is one of the only twelve private medical universities in China.
Fig 26 Enrolment forecast for Jinci College of Shanxi Fig 27 Campus capacity for Jinci College of Shanxi Medical Medical University University
12000 11401 8000 7614
10000 9401 7000
6000 8000 7101 5000 6000 4801 4000 3621 4000 3206 3206 2635 2808 2027 3000 2000 2000 0 1000
0 2014/2015 2015/2016 2016/2017 2017/2018 Source: Company data, Macquarie Research, November 2018 Source: Company data, Macquarie Research, November 2018
For the 2017/2018 school year, Jinci College of Shanxi Medical University had a total of 4,801 students enrolled in bachelor’s degree programme, up about 100% from the 2014/2015 academic year, and 491 teaching staff, nearly 3 times more than the 2014/2015 level. It has established four academies including clinical medical studies, nursing, dentistry and preventative medicine and management and one department of fundamental medical studies and offers 10 majors granting bachelor’s degrees. The top five majors in terms of student enrolment were clinical medicine, nursing, dentistry, anaesthesiology and preventive medicine. Jinci College of Shanxi Medical University maintained close relationships with over 40 hospitals to cooperate with them on graduate employment and internship placement opportunities. The initial employment rate of the graduates achieved 77.9%, 81.9%, and 79.6% in 2015, 2016, and 2017 respectively. 30 November 2018 18 Macquarie Research Hope Education (1765 HK)
Business College of Guizhou University of Finance and Economics, a university-level independent private college. The school was established in 2004 and acquired in April 2014. The company has agreed to pay 30% of annual tuition to Guizhou University of Finance and Economics. Company will also pay a total consideration of Rmb 100m for structure adjustment compensation.
Fig 28 Enrolment forecast for Business College of Guizhou Fig 29 Campus capacity for Business College of Guizhou University of Finance and Economics University of Finance and Economics
18000 18000 16646 14960 15260 16000 14356 14460 16000 14000 14000 12000 10642 11794 12000 10000
8000 6817 10000 8924 6000 8000 3478 4000 6000 4474 2000 4000 0 2000
0 2014/2015 2015/2016 2016/2017 2017/2018
Source: Company data, Macquarie Research, November 2018 Source: Company data, Macquarie Research, November 2018
Business College of Guizhou University of Finance and Economics admitted the first class of student in its Huishui new campus in 2014/2015 academic year and had achieved a total of 14,356 students enrolled for higher education and 1,038 teaching staff in 2017/2018 academic year. As a profession-oriented education provider, the college offers 13 majors granting bachelor’s degrees and its top five majors in terms of student enrolment were accounting, finance, Chinese literature, financial management and administration. Sichuan TOP IT Vocational Institute, is a formal higher education institution founded in 2000. Hope Education is acquired 100% of the equity interest of the school in December 2017. Located in Chengdu, the institute had a total of 12,556 students enrolled in junior college diploma program and 713 teaching staff in the 2017/2018 academic year. It offers 35 majors granting junior college diplomas and its top five majors in terms of student enrolment were software technology, computer network technology, accounting, automotive testing and maintenance technology and e- commerce.
Fig 30 Enrolment forecast for Sichuan TOP IT Vocational Institute Fig 31 ASP forecast for Sichuan TOP IT Vocational Institute
16000 15176 11000 14676 14176 10824 14000 13376 10800 12576 10612 12000 10600 10404 10000 10400 10200 8000 10200 10000 6000 10000
4000 9800
2000 9600
0 9400 2017/2018 2018/2019E 2019/2020E 2020/2021E 2021/2022E 2017/2018 2018/2019E 2019/2020E 2020/2021E 2021/2022E Source: Company data, Macquarie Research, November 2018 Source: Company data, Macquarie Research, November 2018
30 November 2018 19 Macquarie Research Hope Education (1765 HK)
Detailed Financial Data
Fig 32 Ratios YE 31 December 2015 2016 2017 2018E 2019E 2020E 17-18E 18E-19E 18E-21E
RMB: HKD 1.19 1.17 1.20 1.15 1.15 1.15 Per Share EPS (diluted) (HKD) 0.02 0.04 0.05 0.08 0.10 0.13 55% 33% 26% DPS (HKD) ------BVPS (HKD) 0.06 0.11 0.16 0.87 0.98 1.11 455% 12% 13% Cash per share (HKD) (0.10) (0.16) (0.11) 0.29 0.33 0.44 -- 16% 26% Basic shares mn 4,948 4,948 4,948 4,975 4,975 4,975 1% 0% 0% Diluted shares mn 4,948 4,948 4,948 4,978 4,978 4,978 1% 0% 0% Value EV/Revenue x 11.0 x 8.9 x 7.1 x 5.2 x 4.3 x 3.6 x ------EV/EBITDA x 39.6 x 22.5 x 16.1 x 11.7 x 9.1 x 7.4 x ------EV/FCF x -59.6 x 85.9 x -9.7 x -21.2 x 34.1 x 13.1 x ------P/E x 83.8 x 35.0 x 25.4 x 16.4 x 12.3 x 10.1 x ------P/E (ex Cash) x 90.0 x 39.3 x 27.5 x 12.7 x 9.1 x 6.7 x ------Price/ Sales x 11.0 x 8.9 x 7.1 x 5.2 x 4.3 x 3.6 x ------Price/ Book x 21.7 x 11.8 x 8.2 x 1.5 x 1.3 x 1.2 x ------Profit & Loss Revenue HK$ m 579 718 903 1,245 1,488 1,792 38% 20% 20% EBITDA HK$ m 161 283 396 548 702 867 38% 28% 25% Operating Profit HK$ m 81 188 275 426 567 722 55% 33% 29% Net Income HK$ m 76 183 251 392 522 636 56% 33% 26% Profitability Gross Margin % 50.7% 50.4% 47.8% 51.2% 52.2% 53.8% 337 bps 100 bps 423 bps EBITDA Margin % 27.8% 39.4% 43.8% 44.0% 47.2% 48.4% 19 bps 314 bps 501 bps Operating Margin % 13.9% 26.1% 30.5% 34.2% 38.1% 40.3% 378 bps 385 bps 788 bps Net Margin % 13.2% 25.4% 27.8% 31.5% 35.0% 35.5% 367 bps 354 bps 430 bps Cash Flow Operating Cash Flow HK$ m 331 522 601 401 854 995 -33% 113% 43% Free Cash Flow : HK$ m (107) 74 (660) (303) 188 490 ------+EBIT*(1-t) HK$ m 76 183 251 392 522 636 56% 33% 26% +D&A HK$ m 80 95 121 122 135 145 1% 11% 7% +Capex & Investments HK$ m (297) (342) (1,110) (560) (521) (358) -50% -7% -17% +Change in NWC HK$ m 33 138 78 (257) 52 68 -429% -- -- Yield Dividend Yield % 0% 0% 0% 0% 0% 0% ------FCF Yield % -1.7% 1.2% -10.3% -4.7% 2.9% 7.6% ------Earnings Yield % 1.2% 2.9% 3.9% 6.1% 8.1% 9.9% 217 bps 201 bps 600 bps Balance Sheet Net debt (Cash) (RMB mn) 395 671 435 (1,238) (1,437) (1,886) -284% -- -- Net debt/ equity % 160% 145% 67% Cash Cash Cash ------Shareholders Equity (RMB mn) 248 463 649 3,787 4,240 4,793 483% 12% 13% Efficiency ROE (average) % n.a. 43.9% 37.7% 15.4% 11.3% 12.2% (2228 bps) (408 bps) (220 bps) ROA (average) % n.a. 3.7% 4.1% 5.1% 5.5% 6.1% 96 bps 43 bps 161 bps ROIC (average) % n.a. 8.1% 7.4% 7.3% 7.4% 8.3% (11 bps) 12 bps 184 bps Source: Company data, Macquarie Research, November 2018
30 November 2018 20 Macquarie Research Hope Education (1765 HK)
Fig 33 I/S and B/S YE 31 December (RMB 000) 2015 2016 2017 2018E 2019E 2020E 17-18E 18E-19E 18E-21E
Consolidated Income Statement Total Revenue 486,714 614,399 752,434 1,026,286 1,294,050 1,558,400 36% 26% 22.5% Gross Profit 246,524 309,717 360,029 500,731 663,015 827,485 39% 32% 28% GP Margin 51% 50% 48% 49% 51% 53% 94 bps 245 bps 632 bps Other income 48,701 56,758 136,196 170,782 122,008 124,092 25% -29% -9% SG&A -91,083 -102,608 -118,069 -219,102 -174,697 -202,592 86% -20% 4% Operating Profit 67,704 160,663 229,237 325,510 480,213 617,258 42% 48% 34% OP Margin 13.9% 26.1% 30.5% 31.7% 37.1% 39.6% 125 bps 539 bps 1007 bps Tax rate 5.5% 2.8% 8.6% 8.0% 8.0% 12.0% (62 bps) 0 bps 700 bps Net Income 64,012 156,127 209,468 299,470 441,796 543,187 43% 48% 31% NP Margin 13% 25% 28% 29% 34% 35% 134 bps 496 bps 634 bps MQ Adjusted Net Income 56,782 146,626 202,638 344,892 421,796 533,187 70% 22% 24% MQ Adjusted NP Margin 7.8% 23.9% 26.9% 33.6% 32.6% 34.2% 667 bps (101 bps) 165 bps EBITDA 135,303 242,333 329,921 431,498 597,683 742,974 31% 39% 29% EBITDA Margin 27.8% 39.4% 43.8% 42.0% 46.2% 47.7% (180 bps) 414 bps 666 bps
Consolidated Balance Sheet Current Assets 1,525,224 1,650,868 1,043,889 2,841,354 3,246,825 3,918,887 172% 14% 15% Cash 92,354 142,616 181,332 1,855,949 2,027,976 2,468,063 924% 9% 18% Trade receivables 1,179,314 1,259,438 732,824 843,523 1,063,603 1,280,877 15% 26% 9% Available for sale investments 130,390 20,004 8,241 8,241 8,241 8,241 0% 0% 0% Prepayment, deposits and other 92,801 71,928 121,492 133,641 147,005 161,706 10% 10% 10% receivables Pledged Deposits 30,365 156,882 0 0 0 na na na Non-current Assets 2,266,586 2,950,956 4,550,883 4,964,319 5,358,134 5,607,042 9% 8% 4% PPE 1,660,648 2,219,095 3,195,358 3,587,848 3,930,217 4,115,618 12% 10% 4% Goodwill 53,176 53,176 481,143 481,143 481,143 481,143 0% 0% 0% Other intangible 117,165 215,600 118,700 118,700 118,700 118,700 0% 0% 0% Prepaid land lease payments 421,009 444,900 594,873 633,838 685,283 748,791 7% 8% 10% Investment in associates 142,790 142,790 142,790 142,790 0% 0% 0% Prepayment, deposits and other 14,588 18,185 18,019 0 0 0 -100% na na receivables Total Assets 3,791,810 4,601,824 5,594,772 7,805,674 8,604,958 9,525,929 40% 10% 9% Current Liabilities 2,062,538 2,455,299 2,098,061 1,995,428 2,259,667 2,551,687 -5% 13% 7% Deferred revenue 297,932 388,981 535,268 601,346 718,243 864,791 12% 19% 9% Other payables and accurals 587,462 614,290 731,682 562,349 709,068 853,918 -23% 26% 9% Deferred income 5,732 7,203 8,456 9,078 9,701 10,323 7% 7% 5% Bank loans and other loans 618,013 834,000 613,986 613,986 613,986 613,986 0% 0% 0% Loans from related parties 522,667 575,557 154,999 154,999 154,999 154,999 0% 0% 0% Tax payable 30,732 35,268 53,670 53,670 53,670 53,670 0% 0% 0% LT Liabilities 1,479,330 1,651,551 2,817,323 1,958,508 2,004,835 2,051,163 -30% 2% 2% Deferred income 513,438 583,760 629,457 675,785 722,112 768,440 7% 7% 5% Interest bearing bank and other loans 944,000 795,000 1,265,461 1,265,461 1,265,461 1,265,461 0% 0% 0% Deferred tax payable 10,677 10,677 10,677 10,677 0% 0% 0% Convertible bonds 15,000 15,000 628,990 0 0 0 -100% na na Shareholder granting rights 251,048 276,153 -100% na na Other payables 6,892 6,743 6,585 6,585 6,585 6,585 0% 0% 0% Total Liabilities 3,541,868 4,106,850 4,915,384 3,953,936 4,264,503 4,602,850 -20% 8% 5% Shareholders Equity 249,942 494,974 679,388 3,826,385 4,340,456 4,923,079 463% 13% 13% Capital na na na Capital reserve 247,713 462,994 649,464 3,745,166 4,186,961 4,730,148 477% 12% 13% NCI 2,229 31,980 29,924 81,219 153,494 192,931 171% 89% 2% Total Sh. Equity + Liabilities 3,791,810 4,601,824 5,594,772 7,780,321 8,604,958 9,525,929 39% 11% 9% Source: Factset, Toyo Keizai, November 2018
30 November 2018 21 Macquarie Research Hope Education (1765 HK)
Fig 34 C/F Consolidated Cash Flow (Rmb ‘000) 2016 2017 2018E 2019E 2020E 2021E 17-18E 18E-19E 18E-21E
Operating Cash Flow 446,102 500,656 348,459 742,480 864,809 1,010,136 -30% 113% 10% Profit before tax 160,663 229,237 370,738 492,991 628,032 795,352 62% 33% 11% Finance costs 76,817 144,511 112,767 112,767 112,767 112,767 -22% 0% 0% Share of loss of a joint venture 1,752 0 0 0 0 -100% na na Investment income from AFS -2,992 -9,814 -2,472 -2,472 -2,472 -2,472 -75% 0% 0% investment Other interest income -2,388 0 0 0 0 -100% na na Loss on disposal of items of PPE 405 -32,353 0 0 0 0 -100% na na Government grants released -6,475 -7,759 -7,759 -7,759 -7,759 -7,759 0% 0% 0% Depreciation 81,670 100,684 105,988 117,470 125,716 130,632 5% 11% 3% Recognition of prepaid land lease 10,222 10,333 10,000 10,000 10,000 10,000 -3% 0% 0% payment Amortisation of other intangible assets 7,611 10,450 12,377 13,313 14,467 15,894 18% 8% 10% Convertible bond gain -6,253 0 0 0 0 -100% na na Change in Working Capital 118,182 65,030 -223,520 45,609 59,422 75,025 -444% -120% 63% Interest income received -2,610 -16,970 -20,000 -20,000 -20,000 -20,000 18% 0% 0% Income tax paid -1 -2,774 -29,659 -39,439 -75,364 -119,303 969% 33% 11% Investing Cash Flow -381,987 -965,207 -730,285 -430,439 -302,419 -290,400 -24% -41% 12% Purchase of PPE -292,400 -924,771 -487,182 -452,917 -311,680 -283,186 -47% -7% 9% Proceeds from disposal of items of 73,950 35,707 0 0 0 0 -100% na na PPE Additions to other intangibles assets -8,157 -6,491 -54,131 -64,702 -77,920 -94,395 734% 20% 9% Addition to prepaid land lease -84,465 -3,376 0 0 0 0 -100% na na payments Interest income from loans 0 0 0 0 na na na Government grants received 78,268 54,709 54,709 54,709 54,709 54,709 0% 0% 0% Proceeds from loans from related 10,000 534,758 20,000 20,000 20,000 20,000 -96% 0% 0% parties Investment income from AFS 2,992 9,814 2,472 2,472 2,472 2,472 -75% 0% 0% Investments from joint parties -50,000 0 0 0 0 -100% na na Increase/decrease in AFS 109,000 11,951 0 0 0 0 -1 0 0 Increase in deposits -126,517 156,882 0 0 0 0 -100% na na Advance of loan to an associate -83,375 -4,072 0 0 0 0 -100% na na Purchase of a shareholding in an -30,000 -276,153 0 0 0 821% -100% na associate Purchase of subsidiary -61,283 -750,318 0 0 0 0 -100% na na Financing Cash Flow -13,853 503,267 2,054,475 -112,767 -112,767 -112,767 308% -105% 0% Net Change in Cash 50,262 38,716 1,672,649 199,274 449,623 606,969 4220% -88% 11% FX impact 0 0 0 0 0 na na na Cash at beginning of period 92,354 142,616 181,332 1,853,981 2,053,255 2,502,878 27% 922% 19% Cash at end of period 142,616 181,332 1,853,981 2,053,255 2,502,878 3,109,848 922% 11% 18% Source: Company data, Macquarie Research, November 2018
30 November 2018 22 Macquarie Research Hope Education (1765 HK)
Appendices Management profiles
Fig 35 Management profile Name Age Position Roles and Background responsibilities
Mr. Huiwu 45 Founder, Implementing Board Founded the company in 2005. Executive director since March 2017 and chief executive Wang Executive resolutions, overall officer and president since February 2018. (汪辉武) Director, CEO, strategic planning and Graduated with a major in business administration from Sichuan Normal University President operational (Adult Higher Education) in June 2009, and holds a bachelor's degree in education from management Sichuan Normal University in June 2013. Mr. Lin Jiang 51 COO, Overseeing day-to-day Joined in 2016. Appointed as chief operating officer and executive vice president since (蒋林) Executive Vice operations February 2018; served as a standing vice president of Hope Education since February President 2016. Holds bachelor's degree in economics and management from the Party School of Central Committee of the Communist Party of China in December 2004. Received senior economist qualification from the Personnel department of the Ministry of Posts and Telecommunications of the PRC in September 1998.
Mr. Houyi 62 Senior Vice Operation and Joined in 2016. Appointed senior vice president and education management committee Chen President, management of the director since February 2018; previously served as second-level professor and master's (陈厚义) Education Group's colleges tutor from January 2016 to February 2017. Management Holds doctorate degree in economics from Wuhan University in June 2009. Committee Director Ms. Qunwei 49 Senior Vice Teaching and Joined in 2005. Appointed as senior vice president since February 2018; served as a Lou President management of supervisor of Shanghai Shurui Investment Consultant Limited since September 2011. (娄群伟) students Holds bachelor's degree in administrative management from China Central Radio and Television University in July 2010.
Mr. Tao Li 48 Chief Strategy Business development Joined in 2010. Appointed as executive director since March 2017, and chief strategy (李涛) Officer and mergers and officer since February 2018. Was a general manager of Chengdu Hanwang Technology acquisitions Co., Ltd. from July 1999 to December 2010. Has been enrolled in the executive master of business administration distance learning program at China Europe International Business School in Beijing since May 2016.
Mr. Xiao Li 38 Senior Vice Construction of Joined in 2013. Appointed as vice president since February 2018. Appointed as senior (李骁) President colleges and vice president of Hope Education since April 2017. administrative Holds bachelor's degree in applied chemistry from Zhejiang University of Technology in management June 2004. Mr. Xuan He 47 CFO Capital operations and Joined in 2017. Appointed as chief financial officer since June 2017. (何旋) investor relations Received college education in accounting at Southwestern University of Finance and Economic in October 1997. Source: Company data, Macquarie Research, November 2018
30 November 2018 23 Macquarie Research Hope Education (1765 HK)
Corporate Structure
Fig 36 Corporate structure
Source: Company data, Macquarie Research, November 2018
30 November 2018 24 Macquarie Research Hope Education (1765 HK)
Hope Education (1765 HK, Outperform, Target Price: HK$1.57) Interim Results 1H/18A 2H/18E 1H/19E 2H/19E Profit & Loss 2017A 2018E 2019E 2020E
Revenue m 528 498 698 596 Revenue m 752 1,026 1,294 1,558 Gross Profit m 260 247 369 307 Gross Profit m 386 507 676 838 Cost of Goods Sold m 268 252 330 289 Cost of Goods Sold m 366 519 618 720 EBITDA m 303 253 400 338 EBITDA m 512 556 738 883 Depreciation m 53 53 59 59 Depreciation m 101 106 117 126 Amortisation of Goodwill m 0 0 0 0 Amortisation of Goodwill m 0 0 0 0 Other Amortisation m 6 6 7 7 Other Amortisation m 10 12 13 14 EBIT m 244 193 335 273 EBIT m 401 438 608 743 Net Interest Income m -107 -5 -56 -56 Net Interest Income m -145 -113 -113 -113 Associates m 0 0 0 0 Associates m 0 0 0 0 Exceptionals m 0 0 0 0 Exceptionals m 0 0 0 0 Forex Gains / Losses m 0 0 0 0 Forex Gains / Losses m 0 0 0 0 Other Pre-Tax Income m -2 0 -1 -1 Other Pre-Tax Income m -2 -2 -2 -2 Pre-Tax Profit m 135 188 277 216 Pre-Tax Profit m 255 323 493 628 Tax Expense m -2 -15 -22 -17 Tax Expense m -20 -17 -39 -75 Net Profit m 133 173 255 198 Net Profit m 235 306 454 553 Minority Interests m -1 -1 -1 -1 Minority Interests m -2 -2 -2 -2
Reported Earnings m 132 172 254 197 Reported Earnings m 233 304 451 551 Adjusted Earnings m 132 172 254 197 Adjusted Earnings m 233 304 451 551
EPS (rep) fen 2.7 3.4 5.1 4.0 EPS (rep) fen 4.7 6.1 9.1 11.1 EPS (adj) fen 2.7 3.4 5.1 4.0 EPS (adj) fen 4.7 6.1 9.1 11.1 EPS Growth yoy (adj) % -2.6 73.9 92.2 15.0 EPS Growth (adj) % 49.5 29.6 48.6 22.0 PE (rep) x 24.3 18.8 12.6 10.4 PE (adj) x 24.3 18.8 12.6 10.4
EBITDA Margin % 57.4 50.7 57.3 56.8 Total DPS fen 0.0 0.0 0.0 0.0 EBIT Margin % 46.2 38.8 47.9 45.8 Total Div Yield % 0.0 0.0 0.0 0.0 Earnings Split % 43.5 56.5 56.3 43.7 Basic Shares Outstanding m 4,948 4,975 4,975 4,975 Revenue Growth % 37.6 35.1 32.3 19.5 Diluted Shares Outstanding m 4,948 4,978 4,978 4,978 EBIT Growth % 13.5 4.0 37.1 41.0
Profit and Loss Ratios 2017A 2018E 2019E 2020E Cashflow Analysis 2017A 2018E 2019E 2020E
Revenue Growth % 22.5 36.4 26.1 20.4 EBITDA m 512 556 738 883 EBITDA Growth % 56.8 8.5 32.8 19.6 Tax Paid m -3 -30 -39 -75 EBIT Growth % 68.9 9.1 38.8 22.2 Chgs in Working Cap m 65 -224 46 59 Gross Profit Margin % 51.4 49.4 52.2 53.8 Net Interest Paid m -2 0 0 0 EBITDA Margin % 68.1 54.2 57.1 56.6 Other m -72 46 -2 -2 EBIT Margin % 53.3 42.6 47.0 47.7 Operating Cashflow m 501 348 742 865 Net Profit Margin % 31.0 29.6 34.9 35.3 Acquisitions m -750 0 0 0 Payout Ratio % 0.0 0.0 0.0 0.0 Capex m -925 -487 -453 -312 EV/EBITDA x 7.4 6.9 5.2 4.4 Asset Sales m 48 0 0 0 EV/EBIT x 9.5 8.8 6.3 5.2 Other m 662 -243 22 9 Investing Cashflow m -965 -730 -430 -302 Balance Sheet Ratios Dividend (Ordinary) m 0 0 0 0 ROE % 41.9 13.7 11.2 12.2 Equity Raised m -12 -113 -113 -113 ROA % 7.9 6.5 7.4 8.2 Debt Movements m -277 0 0 0 ROIC % 105.0 83.2 27.8 28.2 Other m 792 2,167 0 0 Net Debt/Equity % -26.7 -47.9 -47.0 -50.5 Financing Cashflow m 503 2,054 -113 -113 Interest Cover x 2.8 3.9 5.4 6.6 Price/Book x 8.7 1.5 1.3 1.2 Net Chg in Cash/Debt m 39 1,673 199 450 Book Value per Share 0.1 0.8 0.9 1.0 Free Cashflow m -424 -139 290 553
Balance Sheet 2017A 2018E 2019E 2020E
Cash m 181 1,854 2,053 2,503 Receivables m 733 890 1,064 1,281 Inventories m 0 0 0 0 Investments m 8 8 8 8 Fixed Assets m 3,195 3,588 3,930 4,116 Intangibles m 600 600 600 600 Other Assets m 877 913 978 1,056 Total Assets m 5,595 7,853 8,633 9,563 Payables m 732 593 709 854 Short Term Debt m 0 0 0 0 Long Term Debt m 0 0 0 0 Provisions m 0 0 0 0 Other Liabilities m 4,184 3,392 3,555 3,749 Total Liabilities m 4,915 3,985 4,265 4,603 Shareholders' Funds m 649 3,787 4,240 4,793 Minority Interests m 30 81 128 168 Other m 0 0 0 0 Total S/H Equity m 679 3,868 4,368 4,961 Total Liab & S/H Funds m 5,595 7,853 8,633 9,563
All figures in Rmb unless noted. Source: Company data, Macquarie Research, November 2018
30 November 2018 25 Macquarie Research Hope Education (1765 HK)
Important disclosures: Recommendation definitions Volatility index definition* Financial definitions Macquarie - Australia/New Zealand This is calculated from the volatility of historical All "Adjusted" data items have had the following Outperform – return >3% in excess of benchmark return price movements. adjustments made: Neutral – return within 3% of benchmark return Added back: goodwill amortisation, provision for Underperform – return >3% below benchmark return Very high–highest risk – Stock should be catastrophe reserves, IFRS derivatives & hedging, expected to move up or down 60–100% in a year IFRS impairments & IFRS interest expense Benchmark return is determined by long term nominal – investors should be aware this stock is highly Excluded: non recurring items, asset revals, property GDP growth plus 12 month forward market dividend speculative. revals, appraisal value uplift, preference dividends & yield, which is currently around 9%. minority interests Macquarie – Asia/Europe High – stock should be expected to move up or Outperform – expected return >+10% down at least 40–60% in a year – investors should EPS = adjusted net profit / efpowa* Neutral – expected return from -10% to +10% be aware this stock could be speculative. ROA = adjusted ebit / average total assets Underperform – expected return <-10% ROA Banks/Insurance = adjusted net profit /average Medium – stock should be expected to move up total assets Mazi Macquarie – South Africa or down at least 30–40% in a year. ROE = adjusted net profit / average shareholders funds Outperform – expected return >+10% Gross cashflow = adjusted net profit + depreciation Neutral – expected return from -10% to +10% Low–medium – stock should be expected to *equivalent fully paid ordinary weighted average Underperform – expected return <-10% move up or down at least 25–30% in a year. number of shares Macquarie - Canada Outperform – return >5% in excess of benchmark return Low – stock should be expected to move up or All Reported numbers for Australian/NZ listed stocks Neutral – return within 5% of benchmark return down at least 15–25% in a year. are modelled under IFRS (International Financial Underperform – return >5% below benchmark return * Applicable to Asia/Australian/NZ/Canada stocks Reporting Standards). only Macquarie - USA Outperform (Buy) – return >5% in excess of Russell Recommendations – 12 months 3000 index return Note: Quant recommendations may differ from Neutral (Hold) – return within 5% of Russell 3000 index Fundamental Analyst recommendations return Underperform (Sell)– return >5% below Russell 3000 index return
Recommendation proportions – For quarter ending 30 September 2018 AU/NZ Asia RSA USA CA EUR Outperform 51.56% 59.51% 45.05% 46.88% 67.86% 46.70% (for global coverage by Macquarie, 3.70% of stocks followed are investment banking clients) Neutral 33.20% 28.92% 37.36% 47.70% 25.00% 42.73% (for global coverage by Macquarie, 2.04% of stocks followed are investment banking clients) Underperform 15.23% 11.57% 17.58% 5.42% 7.14% 10.57% (for global coverage by Macquarie, 0.47% of stocks followed are investment banking clients)
1765 HK vs HSI, & rec history
(all figures in HKD currency unless noted)
Note: Recommendation timeline – if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, November 2018
12-month target price methodology 1765 HK: HK$1.57 based on a DCF methodology
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30 November 2018 27
Equities
Asia Research Head of Equity Research Emerging Leaders Technology Jake Lynch (Asia – Head) (852) 3922 3583 Jake Lynch (Asia) (852) 3922 3583 Damian Thong (Asia, Japan) (813) 3512 7877 Hiroyuki Sakaida (Japan – Head) (813) 3512 6695 Kwang Cho (Korea) (822) 3705 4953 Allen Chang (Greater China) (852) 3922 1136 Conrad Werner (ASEAN – Head) (65) 6601 0182 Corinne Jian (Greater China) (8862) 2734 7522 Jeffrey Ohlweiler (Greater China) (8862) 2734 7512 Conrad Werner (ASEAN) (65) 6601 0182 Kaylin Tsai (Greater China) (8862) 2734 7523 Automobiles, Auto Parts Bo Denworalak (Thailand) (662) 694 7774 Lynn Luo (Greater China) (8862) 2734 7534 Patrick Liao (Greater China) (8862) 2734 7515 Janet Lewis (China, Japan) (813) 3512 7856 Infrastructure, Industrials, Transportation Allen Yuan (China) (8621) 2412 9009 Verena Jeng (Greater China) (852) 3922 3766 James Hong (Korea) (822) 3705 8661 Patrick Dai (China) (8621) 2412 9082 Jin Guo (Greater China) (8621) 2412 9054 Amit Mishra (India) (9122) 6720 4084 Eric Zong (China, Hong Kong) (852) 3922 4749 Daniel Kim (Korea) (822) 3705 8641 Kunio Sakaida (Japan) (813) 3512 7873 Abhishek Bhandari (India) (9122) 6720 4088 Banks and Financials James Hong (Korea) (822) 3705 8661 Farrah Aqlima (Malaysia) (603) 2059 8987 Scott Russell (Asia) (852) 3922 3567 Corinne Jian (Taiwan) (8862) 2734 7522 Telecoms Dexter Hsu (China, Taiwan) (8862) 2734 7530 Inderjeetsingh Bhatia (India) (9122) 6720 4087 Allen Chang (Greater China) (852) 3922 1136 Keisuke Moriyama (Japan) (813) 3512 7476 Internet, Media and Software Chan Hwang (Korea) (822) 3705 8643 Prem Jearajasingam (ASEAN) (603) 2059 8989 Suresh Ganapathy (India) (9122) 6720 4078 Wendy Huang (Asia) (852) 3922 3378 Nathania Nurhalim (Indonesia) (6221) 2598 8365 Jayden Vantarakis (Indonesia) (6221) 2598 8310 Marcus Yang (Greater China) (8862) 2734 7532 Kervin Sisayan (Philippines) (632) 857 0893 Anand Pathmakanthan (Malaysia) (603) 2059 8833 John Wang (China, Hong Kong) (852) 3922 3578 Utilities, Renewables Gilbert Lopez (Philippines) (632) 857 0892 Ellie Jiang (China, Hong Kong) (852) 3922 4110 Peach Patharavanakul (Thailand) (662) 694 7753 Frank Chen (China, Hong Kong) (852) 3922 1433 Hiroyuki Sakaida (Japan) (813) 3512 6695 Alankar Garude (India) (9122) 6720 4134 Patrick Dai (China) (8621) 2412 9082 Basic Materials, Commodities Inderjeetsingh Bhatia (India) (9122) 6720 4087 Oil, Gas and Petrochemicals David Ching (China, Hong Kong) (852) 3922 1823 Karisa Magpayo (Philippines) (632) 857 0899 Harunobu Goroh (Japan) (813) 3512 7886 Aditya Suresh (Asia) (852) 3922 1265 Strategy, Country Yasuhiro Nakada (Japan) (813) 3512 7862 Anna Park (Asia) (822) 3705 8669 Anna Park (Korea) (822) 3705 8669 Yasuhiro Nakada (Japan) (813) 3512 7862 Viktor Shvets (Asia, Global) (852) 3922 3883 Sumangal Nevatia (India) (9122) 6720 4093 Corinne Jian (Taiwan) (8862) 2734 7522 David Ng (China, Hong Kong) (852) 3922 1291 Jayden Vantarakis (Indonesia) (6221) 2598 8310 Ben Shane Lim (Malaysia) (603) 2059 8868 Hiroyuki Sakaida (Japan) (813) 3512 6695 Farrah Aqlima (Malaysia) (603) 2059 8987 Yupapan Polpornprasert (Thailand) (662) 694 7729 Chan Hwang (Korea) (822) 3705 8643 Jeffrey Ohlweiler (Taiwan) (8862) 2734 7512 Conglomerates Pharmaceuticals and Healthcare Inderjeetsingh Bhatia (India) (9122) 6720 4087 David Ng (China, Hong Kong) (852) 3922 1291 David Ng (China, Hong Kong) (852) 3922 1291 Conrad Werner (ASEAN, Singapore) (65) 6601 0182 Gilbert Lopez (Philippines) (632) 857 0892 Xiang Gao (China, Hong Kong) (8621) 2412 9006 Jayden Vantarakis (Indonesia) (6221) 2598 8310 Conrad Werner (Singapore) (65) 6601 0182 Corinne Jian (China) (8862) 2734 7522 Anand Pathmakanthan (Malaysia) (603) 2059 8833 Alankar Garude (India) (9122) 6720 4134 Gilbert Lopez (Philippines) (632) 857 0892 Consumer, Gaming Richardo Walujo (Indonesia) (6221) 259 88 369 Peach Patharavanakul (Thailand) (662) 694 7753
Linda Huang (Asia) (852) 3922 4068 Property, REIT Terence Chang (China, Hong Kong) (852) 3922 3581 Find our research at Sunny Chow (China, Hong Kong) (852) 3922 3768 David Ng (China, Hong Kong) (852) 3922 1291 Macquarie: www.macquarieresearch.com Leon Rapp (Japan) (813) 3512 7879 Kelvin Tam (China) (852) 3922 1181 Thomson: www.thomson.com/financial Kwang Cho (Korea) (822) 3705 4953 Keisuke Moriyama (Japan) (813) 3512 7476 Reuters: www.knowledge.reuters.com Amit Sinha (India) (9122) 6720 4085 Tomoyoshi Omuro (Japan) (813) 3512 7474 Bloomberg: MAC GO Robert Pranata (Indonesia) (6221) 2598 8366 Abhishek Bhandari (India) (9122) 6720 4088 Factset: http://www.factset.com/home.aspx Richardo Walujo (Indonesia) (6221) 2598 8369 Richard Danusaputra (Indonesia) (6221) 2598 8368 CapitalIQ www.capitaliq.com Denise Soon (Malaysia) (603) 2059 8845 Aiman Mohamad (Malaysia) (603) 2059 8986 Email [email protected] for access
Karisa Magpayo (Philippines) (632) 857 0899 Kervin Sisayan (Philippines) (632) 857 0893 Chalinee Congmuang (Thailand) (662) 694 7993 Bo Denworalak (Thailand) (662) 694 7774
Asia Sales Regional Heads of Sales Regional Heads of Sales cont’d Sales Trading cont’d Miki Edelman (Global) (1 212) 231 6121 Paul Colaco (San Francisco) (1 415) 762 5003 Suhaida Samsudin (Malaysia) (603) 2059 8888 Amelia Mehta (Asia) (65) 6601 0211 Eric Lin (Taiwan) (8862) 2734 7590 Michael Santos (Philippines) (632) 857 0813 Alan Chen (Asia) (852) 3922 2019 Angus Kent (Thailand) (662) 694 7601 Chris Reale (New York) (1 212) 231 2555 Sandeep Bhatia (India) (9122) 6720 4101 Mothlib Miah (UK/Europe) (44 20) 3037 4893 Marc Rosa (New York) (1 212) 231 2555 Tim Huang (Indonesia) (6221) 2598 8303 Christina Lee (US) (44 20) 3037 4873 Justin Morrison (Singapore) (65) 6601 0288 Thomas Renz (Geneva) (41 22) 818 7712 Brendan Rake (Thailand) (662) 694 7707 Tomohiro Takahashi (Japan) (813) 3512 7823 Sales Trading Mike Keen (UK/Europe) (44 20) 3037 4905 John Jay Lee (Korea) (822) 3705 9988 Mark Weekes (Asia) (852) 3922 2084 Nik Hadi (Malaysia) (603) 2059 8888 Stanley Dunda (Indonesia) (6221) 515 1555 Gino C Rojas (Philippines) (632) 857 0861
This publication was disseminated on 30 November 2018 at 03:08 UTC.