中国教育行业报告

1、Contents HYPERLINK l _TOC_250006 Why readthisreport2 HYPERLINK l _TOC_250005 Executivesummary3 HYPERLINK l _TOC_250004 Industryoutlook9 HYPERLINK l _TOC_250003 Companysection21 HYPERLINK l _TOC_250002 Offcn Education(002607CH)22 HYPERLINK l _TOC_250001 Shiyuan Electronic Technology (002841CH) HYPERL

2、INK l _TOC_250000 My Gym Education Technology (002621CH)Lanxum Technology (300010 CH)49Disclosureappendix56Disclaimer59Why read this reportWe focus on companies offering specialist products and servicesinChinas education marketThey cover everything from civil service exam training to classes for tod

3、dlers. Based on our analysis of supply, demand and policy support, the outlook isbrightInitiate coverage on four companies that offer niche products and services: Offcn Education Technology (Buy), Shiyuan Electronic Technology (Buy), My Gym (Buy), and Lanxum Technology(Hold)Executive summaryDemand f

4、or education in China just keeps growing, but the supply side is struggling to keepupIn many areas, the private sector is picking up theslackWe initiate coverage on four companies that offer nicheproducts and servicesSpecialist subjectsThis report looks at education in China from a new angleWe forec

5、ast that Chinas education market will expand at a CAGR of 8.8% over 2018- 22e to reach RMB12.1trnThis report looks at education in China from a new angle the wealth of sub-sectors that provide niche products and services away from the main market of primary and secondary education. These businesses

6、include everything from preparing individuals for the countrys tough civil service exams and pre-school classes, to smart education equipment for classrooms and early childhood education.Based on our analysis of supply, demand and government policy support, we find that the outlook for growth is bri

7、ght. The market has many attractions. Indeed, such is the pulling power of the education sector, My Gym Education Technology, one of the companies covered in this report, has switched the focus of its business from producing plastic pipes to running pre-school classes for toddlers.A RMB12trn market

8、by 2022eWe forecast that Chinas education market will expand at a CAGR of 8.8% over 2018-22e to reach RMB12.1trn (43% state sector and 57% private sector). By the end of this period we expect China to have overtaken the US as the worlds largest education market. As we discuss later, the significant

9、difference between the two countries education systems is that pressure to get good results in secondary school is much greater in China, and, in terms of higher education, the participation rate and range of choices is much higher in the US.In China, local governments provide most of the funding fo

10、r education. According to the 2018 China Statistical Yearbook, government funding for education totalled RMB3.7trn last year. However, funding pressures on local governments are rising, especially now that the economy is slowing. As a result, education resources are becoming increasingly stretched,

11、especially in the largest cities. This, in turn, leads to greater demand for private education services.Exhibit 1. Chinas education market (RMBtrn)1412108642020152016201720182019e2020e2021e2022eFamilyeducationexpenditureGovernments funding ineducationSource: China Statistical Yearbook, HSBC Qianhai

12、Securities estimatesExhibit 2. Chinas education industry by categorySource: HSBC Qianhai SecuritiesOur analysis framework: demand, supply and policyWe look at various sub-sectors of Chinas education industry from the perspective of demand, supply and policy.Demand: Three factors consumer spending, p

13、opulation policy and urbanisation drive demand. 1) As incomes have risen, we estimate that per capita spending on education, culture and entertainment increased at a CAGR of 10.5% over 2010-18; 2) the two-child policy implemented in 2016 should mitigate the decline in the birth rate; and 3) due to u

14、rbanisation, state education resources in tier 1 and tier 2 cities are becoming increasingly stretched.Supply: Official statistics show that the number of primary schools has dropped sharply in the last 20 years. This reflects both the falling birth rate and the attempts to use resources more effici

15、ently. However, pressures are rising for local governments, which are largely responsible for funding education, especially at a time of slowing economic growth. Resources in the largest cities are becoming stretched. This, in turn, leads to greater demand for private education services, such as ear

16、ly-learning classes and after-school tutoring. Meanwhile, the government wants to increase the use of technology the latest policy dictates the expenditure on education informatization should not be below 8% of total educationexpenditure.Policy: In general, government policy is broadly supportive of

17、 private education. For example, in2016,theStateCouncilreleasedguidelinesrequiringlocalgovernmentstoprovidesupporttonon-state education in terms of government subsidies, government purchase of services, tax and fee cuts, and land policies.Initiate coverageWe are bullish on the futureof Chinas educat

18、ion industryWe are bullish on the future of Chinas education industry, especially areas, such as training for government recruitment, smart education, early childhood education, and after-school tutoring. We initiate coverage on leading companies in each niche market Offcn Education Technology, Shiy

19、uan Electronic Technology, My Gym and Lanxum Technology. We prefer Offcn Education, rated Buy.The A-share education sector market performed well so far in 2019 and share prices of leading companies surged sharply.Offcn Education Technology (002607 CH, Buy): The company focuses on offline and online

20、training for individuals taking exams for employment in the civil service, public institutions, the teaching professions, and postgraduate university admittance. Its customers are mainly college students and jobseekers. We expect net profit to grow 51% y-o-y, 42% y-o-y and 32% y-o-y to RMB1.743bn, R

21、MB2.470bn and RMB3.262bn, respectively, in 2019-21e.The companys share price rose c200% so far in 2019.Shiyuan Electronic Technology (002841 CH, Buy): The company manufactures and sells LCD display main control boards and interactive panels used in schools and by corporates. Its main interactive pan

22、el product for schools, Seewo, generated 33% of total revenue in 2018. The company has a 40% market share in China for interactive panels used in education. We expect net profit to grow 60% y-o-y, 24% y-o-y and 31% y-o-y to RMB1.607bn, RMB1.997bn and RMB2.624bn, respectively, in 2019-21e.The company

23、s share price rose c60% so far in 2019.My Gym (002621 CH, Buy): The company has transformed itself into an early childhood education business since 2017. My Gym provides training for babies in sports, language and art. We expect net profit to grow 453% y-o-y, 26% y-o-y and 11% y-o-y to RMB174m, RMB2

24、19m and RMB244m in 2019-20e. The assets acquired by the company have been fully consolidated into the financial statements in 2019, which has boosted y-o-y profit substantially.The companys share price rose c20% so far in 2019.Lanxum Technology (300010 CH, Hold): The company first focused on informa

25、tion security but has since switched to education, which as of 1H19 generates 100% of revenue. The main revenue streams are Chinese language tutoring, consultancy services for studying abroad and education informatization. We expect the company to swing into profit in 2019e, with 2019-21e net profit

26、 of RMB224m, RMB281m and RMB351m, respectively, and 2020-21e net profit growth of 25% in both years.The companys share price rose c30% so far in 2019.Exhibit 3. Four education companies in niche marketsCompanyNiche marketProductsMarket size(2018)Marketposition(2018)levelCatalystsOffcn EducationTrain

27、ing for civilOffline and online trainingRMB100bnNo 1 with a shareof7%VocationalJob-hunting pressureTechnologyservice examseducationShiyuan ElectronicEducationInteractive panels forEducationNo 1 with a share of 36.5% in the K12Increasing government expenditure onTechnologyinformatizationschoolsinform

28、atization:interactive panel marketeducation informatizationRMB300bnInteractive panels:RMB20bnMy GymEarly childhoodOffline trainingRMB150bnAmong the top 5 in terms of the Pre-schoolConsumption upgrading; adjustmenteducationnumber offranchiselocationseducationof population policyLanxumK12 tutoringChin

29、ese language tutoringRMB500bnThe leading playerinChineseK12Studying pressureTechnologylanguage tutoringSource: Frost & Sullivan, Company data, HSBC Qianhai SecuritiesExhibit 4. Operational metricsOffcn EducationShiyuanElectronicMy GymLanxum Technology2018aRevenue(RMBm)6,23716,9842651,952Netprofit(RM

30、Bm)1,1531,00432-1,393Grossmargin (%)39.1Netmargin (%)18.56.314.7-ROE(%)47.434.02.7-2019eRevenue(RMBm)9,38120,4837542,194Netprofit(RMBm)1,7431,607174224Grossmargin (%)59.925.268.440.0Netmargin (%)18.67.823.110.2ROE(%)48.240.013.76.6Source: Company data, HSBC Qianhai Securities estimatesHSBC Qianhai e

31、stimates vs consensusAs we are optimistic about the growth of Offcn Educations civil service and teacher recruitment examination training, our 2019-21e net profit estimates are 1.2%, 3.8% and 4.5%, respectively, above consensus. As we are optimistic about the number of My Gyms franchises, our 2019-2

32、1e net profit estimates are 5.5%, 14.9% and 5.0%, respectively, above consensus. As we more pessimistic about the development of Lanxum Technologys smart education business, our 2019-21e net profit estimates are 14.6%, 10.6% and 9.9%, respectively, below consensus.Exhibit 5. HSBC Qianhai estimates v

33、s consensusTickerCompanyRMBmHSBCQianhaiSecurities Windconsensus estimatesHSBC Qianhai Securities vs Wind consensus2019e2020e2021e2019e2020e2021e2019e2020e2021e002607 CH OffcnEducationRevenueTechnology9,38113,01716,8339,17012,32015,7772.3%5.7%6.7%Net profit1,7432,4703,2621,7232,3793,1221.2%3.8%4.5%00

34、2841 CH ShiyuanElectronicTechnology20,48324,91630,45220,30424,44029,6910.9%1.9%2.6%Net profit1,6071,9972,6241,5672,0122,5712.5%-0.8%2.1%002621 CH MyGym7549001,0267128429866.0%6.9%4.1%Net profit1742192441651912325.5%14.9%5.0%300010 CH LanxumTechnology2,1942,6113,0612,2632,6673,141-3.0%-2.1%-2.6%Net p

35、rofit224281351262314389-14.6%-10.6%-9.9%Source: Wind, HSBC Qianhai Securities estimatesThe education industry is strictly regulatedShare price catalystsThe education industry is anti-cyclical. Against the backdrop of a slowdown in economic growth, education companies are sought after by investors du

36、e to the visibility of their earnings growth.The listed A-share education companies have a scarcity value. As leaders in various sub- sectors, they deserve a valuation premium, in our view.Key industry risksRegulatory risks: The education industry is strictly regulated and any new regulations will h

37、ave an impact on the market. In general, there are limits on private capital being invested in kindergartens and K12 schools, as regulators have concerns about education equality.However, private companies are being encouraged to provide higher education, vocational education, and non-school educati

38、on, such early childhood education and K12 extra-curricular tutoring.Lower-than-expected birth rate: If Chinas birth rate is lower than we anticipate, the growth of the education industry will be impacted by declining demand.Lower-than-expected growth in expenditure: Growth in consumption is the mai

39、n driver of the education industry. If this is lower than expected, overall growth of the education industry will miss expectations.Exhibit 6. Comparable education companiesCompanyTickerRating(15 Target PriceUpsideMktCap PE (x) Net profitgrowthrateNetprofit ROE (%) _CAGRRMBRMBUSDm 2019e 2020e 2021e

40、2019e 2020e 2021e2018-21e 2019e 2020e 2021eOffcn EducationTechnology002607 CH Buy20.4624.0017.3%18,28873513951%42%32%37%48.247.344.1Shiyuan Electronic002841 CH Buy84.94115.7036.2%8,07135282160%24%31%28%40.037.136.7TechnologyMy Gym002621 CH Buy11.3614.8030.3%97339312826%11%18%13.715.415.3Lanxum Techn

41、ology300010 CH Hold9.3710.4011.0%125%25%Mean46352855%29%25%27%27.126.926.3Median37302555%26%28%26%26.926.326.0USDUSDUSDmNew Oriental EducationEDUUSNR121.47NANA19,30047352616%35%33%34%10.917.819.0TAL EducationTALUSNR44.44NANA26,200714639-9%56%18%36%17.914.620.0HKDHKDChina East Education6

42、67HKNR16.20NANA4,55136272273%30%26%28%22.620.221.1Mean51362927%40%26%33%12.212.715.1Median47352616%35%26%34%14.416.219.5Source: Wind, HSBC Qianhai Securities estimates for rated companies. Priced as at 15 November 2019. NR Not Rated. NA Not Applicable.Valuation and risksValuationRisksOffcn Education

43、 Technology 002607 CHClosing price:Offcn Education Technology 002607 CHRMB20.46Target price:RMB24.00BuyUpside:Buy17.3%We use a PE multiple to value the shares. We derive our target price of RMB24.00 from a 60 x 2020e PE, implying 17.3% upside from the current share price; considering that the compan

44、y is the leader in vocational education, we initiate coverage with a Buy rating.We expect net profit to grow at 51% in 2019e, and the current share price implies a c72x 2019e PE. As we expect 42% y-o-y growth in 2020e net profit, we value the shares at a 60 x 2020e PE, 1 SD below the historical aver

45、age. In comparison, the companys 2020e net profit growth rate is higher than the peer average of 29%, and the peers trade at a 35x 2020e PE onaverage.Jing Han* | HYPERLINK mailto:jing01.han jing01.han | +86 10 5795 2344Key downside risks: Policy risk, reducing staff numbers in the government and ins

46、titutions, resulting in fewer applicants; lower-than-expected new business development; competition from online training rivals.Shiyuan Electronic Technology 002841 CHClosing price:Shiyuan Electronic Technology 002841 CHRMB84.94Targetprice:BuyUpside:Buy36.2%My Gym 002621 CHClosing price:My Gym 00262

47、1 CHRMB11.36Target price:BuyRMB14.80BuyUpside:30.3%We use a PE multiple to value the shares. Based on a 2020e forward PE of 38x (1 SD below the historical average), we derive a target price of RMB115.70, implying 36.2% upside from the current share price. We initiate coverage with a Buy rating.In ou

48、r view, a 38x 2020e PE is justified because: 1) we estimate the net profit CAGR will reach 28% over 2019-21e, higher than the peer average during the same period of 27%. In comparison, peers currently trade at an average of a 35x 2020e PE, and 2) our net profit CAGR of 28% over 2019-21e is lower tha

49、n the 52% over 2017-19e.Given an average PE of 44x over 2017-19e, we value the company at a 38x PE, 1 SD below the historical average.Jing Han* | HYPERLINK mailto:jing01.han jing01.han | +86 10 5795 2344We use a PE multiple to value the shares. Based on a 2020e forward PE of 40 x (3 SD below the his

50、torical average), we derive a target price of RMB14.80, implying 30.3% upside from the current share price. We initiate coverage with a Buy rating.In our view, a 40 x 2020e PE is justified because: 1) we estimate 2020e net profit to grow 26% y-o-y, slightly below the average (29%) of its comparable

51、companies, which are trading at a 2020e average PE of 35x. The higher 2020e PE compared to its peers is due to the scarcity valueintheearlyeducationindustry,sowethinkitdeservesavaluation premium; and 2) we estimate 2020e net profit to grow 26%, lower than the 30% in 2019e. Following the asset restru

52、cturing in March 2019, the shares trading at an average PE of 50 x. As such, our 2020e PE of 40 x for the shares is 3 SD below the historicalaverage.Jing Han* | HYPERLINK mailto:jing01.han jing01.han | +86 10 5795 2344Key downside risks: Declining market share due to stronger competition; lower-than

53、-expected sub-sector development; business risk of foreign exchange hedging; risk from the release of restricted shares.Key downside risks: Regulations on the early education industry; intensifying market competition risk; shrinking market size due to a declining number of births.Lanxum Technology 3

54、00010Closing price:Lanxum Technology 300010RMB9.37Target price:HoldRMB10.40HoldUpside:11.0%We use a PE multiple to value the shares. Based on a 2020e PE of 32x (6% lower than the 2020e average PE of its comparable companies), we derive a target price of RMB10.40, implying 11.0% upside from the curre

55、nt share price. We initiate coverage with a Hold rating.The companys valuation was volatile before 2017, and its net profit fell in 2017 and 2018, so we believe the historical valuation is not comparable.Wetakethevaluationlevelofitscomparablecompaniesas a reference. We estimate 2020e net profit to g

56、row 25% y-o-y, slightly below the average (29%) of its comparable companies, which are trading at a 2020e average PE of 35x. We therefore assign a 2020e forward PE of 32x, 6% lower than the 2020e average PE of its comparablecompanies.Jing Han* | HYPERLINK mailto:jing01.han jing01.han | +86 10 5795 2

57、344Key upside risks: Better-than-expected Chinese language performance; better-than-expected business transformation; core technological innovation.Key downside risks: Goodwill impairment risks, receivables risks; management risk following the comprehensive education transformation.Source: Bloomberg

58、, HSBC Qianhai Securities estimates. Priced as at 15 November 2019.*Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered / qualified pursuant to FINRA regulations*Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered / qualified pursuant to

59、FINRA regulationsIndustry outlookIndividuals are willing to spend more money on helping their childrens education and improving their ownqualificationsPrivate companies are playing a more significant role in thisprocessGovernment policy support is also set to help drivegrowthDemand side: Education h

60、elps individuals move up in the worldMany want to improve their qualifications so they can move up in the worldThe better things in lifeThe structure of household consumption is changing in China, in line with the increase in per capita income. Simply put, individuals are spending more on the finer