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Bright Scholar Education (BEDU US) - Positive outlook but current valuation fair

作者: Eugene MAK,Lewis WONG
时间: 2017年11月10日
重要性: 一般报告
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摘要: Report title:Bright Scholar Education (BEDU US) - Positive outlook but current valuation fair
Analyst:Eugene MAK,Lewis WONG
Report type:Company
Date:20171110
[Summary]

■ Strong earnings turnaround, in-line with expectations
■ Expect strong earnings growth to continue with 74% YoY growth in FY18E as student growth continues and GPM improves
■ Despite positive outlook, current valuation fair at 1.3x FY17 PEG (FY17-19E EPS CAGR) vs 1.2x sector average

Student growth drives turnaround as expected
FY17 recurring earnings (GAAP) turned around from RMB36mn loss in FY16 to RMB189mn profit (in-line with consensus) driven by revenue growth of 28% YoY to RMB1.3bn and GPM expansion of 0.9ppt YoY to 35%. Revenue growth was boosted by student growth whereby international/bilingual/kindergarten schools all posted student growth of 14-15% YoY coupled with average tuition fee growth of 4%/9%/8% YoY respectively. Meanwhile, GPM was also driven by the student growth as student-teacher ratio increased from 9.8 in FY16 to 10.5 in FY17.

Outlook unchanged, strong growth continues ahead
The group will continue to increasing student number as its main objective and hence drive revenue growth and GPM expansion by increasing student-teacher ratio. We currently expect FY18E revenue to increase 21% YoY to RMB1.6bn on 16% YoY growth in students in its schools to 34,591 and 19% YoY growth in students from learnings centres to 4,284. Meanwhile, average tuition fees will increase at a low single digit YoY for schools. We expect GPM to increase 1ppt YoY to 36% in FY18E as student-teacher ratio increases from 10.5 in FY17 to 11.8 in FY18E. In FY18E, the group will add 12 schools (five bilingual schools and seven kindergartens), including the new kindergarten acquired in 3Q17. As a result, there will be 13 new schools contributing in FY18E. We maintain our FY18E/19E relatively unchanged as we cut revenue on lower student growth forecasts but is offset by lower SG&A expense expectations. Our FY18E/19E EPS are -7%/+9% vs consensus.

Downgrade NEUTRAL on fair valuation
Bright Scholar’s share price has risen more than 100% since its IPO in May 2017. Despite our positive outlook, we consider its valuation as fair and downgrade our rating to NEUTRAL. We lift our TP from US$15.35 to US$21.80 as we lift our target FY17 PEG from 0.9x to 1.2x (based on a FY17-19E EPS CAGR of 75%), in-line with sector average PEG.

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