The Zhitong Finance App learned that China Galaxy Securities released a research report saying that judging from the valuation, higher education companies have the characteristics of undervaluation and high dividend rates. The overall PE is about 5x-6x, and the dividend ratio remains high in single digits, reflecting previous market concerns about dividend sustainability and debt risk have been included in the stock price. At present, well-operating higher education companies have implemented related transactions, raised income tax rates to ensure stable dividends+reduce the share of overseas debt. The risk has been significantly reduced, and there is room for significant improvement in the overall valuation of the sector. In terms of gaming, it is expected that the new Hong Kong and Macau travel policy will have a significant positive impact on the Macau gaming industry in the short, medium and long term. In particular, the current rule that group travelers can travel multiple times between Hengqin and Macau will greatly enhance the long-term space of the Macau travel market, and there is a possibility that it will be further liberalized to free travelers in the future.

Key announcements & events: (1) China introduced entry/exit management measures for convenience enterprises; (2) outbound travel surged during May 1st Golden Week.

The main views of China Galaxy Securities are as follows:

Sector performance: The SW social services industry rose and fell -2.3% in April, falling 15.9pct behind the Shanghai and Shenzhen 300 Index since this year. The increases and decreases for each segment were: Hospitality (+1.6%), Tourism and Attractions (-0.9%), Professional Services (-3.2%), and Education (-7.1%).

Higher education: Determination of demand+there is room for improvement in policies. Current valuations are aggressive and defensible

The contradiction between the population of higher education age will continue to grow over the next 10 years and the current limited financial capacity of local governments determines that future college supply growth will still need to rely on private capital. Therefore, China Galaxy Securities believes that the growth of higher education companies is sustainable, and that it is only a matter of time before the selection and implementation of campuses is a matter of time.

Judging from the valuation, higher education companies have the characteristics of undervaluation and high dividend rates. The overall PE is about 5x-6x, and the dividend ratio remains high in single digits, reflecting previous market concerns about dividend continuity and debt risk already included in the stock price. At present, well-operating higher education companies have implemented related transactions, raised income tax rates to ensure stable dividends+reduce the share of overseas debt. The risk has been significantly reduced, and there is room for significant improvement in the overall valuation of the sector.

Macau Gaming: Significant improvements in Hong Kong and Macau travel policies drive new beta opportunities

The new travel policy for mainland residents to Hong Kong and Macau will officially take effect on May 6. The biggest change in the new policy is to allow mainland group travelers to travel freely between Hengqin and Macau. At the same time, the New Deal will also implement “full online processing” for the exchange and replacement of entry documents in 20 pilot cities across the country, including Guangzhou (12.1%), Zhuhai (14.7%), Shenzhen (7.1%), Foshan (6.4%), and Shanghai (4.1%), which are important tourist destinations in Macau, and extend the length of stay of business visa personnel in Macau from no more than 7 days to no more than 14 days.

As the correlation between the growth of the Macau gaming market and the number of inbound tourists has increased dramatically in the new regulatory context, China Galaxy Securities anticipates that the new Hong Kong and Macau travel policy will have a significant positive impact on the Macau gaming industry in the short, medium and long term. In particular, its current rule that group travelers can make multiple trips between Hengqin and Macau will greatly enhance the long-term space of the Macau travel market, and there is a possibility that it will be further liberalized to free travelers in the future. Furthermore, the increase in the length of stay of business travelers is expected to provide important support for the growth of middle and high-end midmarket spending.

China Galaxy Securities anticipates that the beneficiaries will be Sands China Limited (01928) > MGM China (02282) > Aobo Holdings (00880) > Galaxy Entertainment (00027) > Wynn Macau (01128). Currently, the Macau gaming sector's 24-year EV/EBITDA is about 11x, which is at the lowest level in history. The focus is on MGM China with increased market share and improved profitability.

Education: Q1 performance fulfills rigid demand+pattern improvement logic

1) K12 Track: Out-of-school training is growing strongly, and New Oriental/Good Future/University education performance is generally close to or above the level before the double decline, reflecting the continuous implementation of the industrial logic of improving supply and demand under policy optimization. In addition, through business restructuring, the private K12 Education Quality Company's revenue performance also reached a record high. Tianli International's 1H24 revenue/net profit ratio was +74%/70%, respectively, and the for-profit high school business has entered a rapid growth trajectory.

2) Higher education: The revenue/profit growth rate of well-operating higher education companies has maintained steady growth. At the same time, as income tax rates increase, related transactions are expected to enhance the sustainability of dividends. Among them, China Education Holdings/China Kepei/China Chunlai/Zhonghui Group all paid interim dividends.

The proposal focuses on two main investment lines: 1) K12: verifying industry trends, recommending Xuedai Education (000526.SZ) and Code Education (300192.SZ); it is recommended to focus on New Oriental-S (09901), Good Future (TAL.US), Thinking Happy Education (01769), Excellent Education Group (03978), Tianli International Holdings (01773); 2) Higher Education: With attractive dividend rates, it is recommended to focus on companies with sustainable dividend sharing capabilities; it is recommended to focus on China Education Holdings (00839), Xinjiao Group (01773) 02001), China Science and Technology (01890), China Chunlai (01969), Zhonghui Group (00382).

Tourism: The mainland liberalizes residents' travel to Hong Kong and Macau, and the gaming sector is expected to benefit significantly

Starting May 6, mainland China will implement a new travel policy for residents to Hong Kong and Macau. In particular, tour groups will be allowed to make multiple round trips between Hengqin and Macau, which means that the carrying capacity of the Macau travel market will expand 3.2 times compared to the past. In addition, visa processing methods have also been further relaxed, allowing online visa applications. In particular, the convenience of online processing of business visas has been relaxed and the length of stay increased. China Galaxy Securities anticipates that the new policy will have a significant positive impact on the summer Macau travel market. It is recommended to focus on the Macau gaming industry. In addition, we continue to recommend the Sante Ropeway (002159.SZ), and it is recommended to focus on Ctrip Group-S (09961) and Tongcheng Travel (00780).

Tax exemption: Duty-free sales on the outlying islands are still under pressure, but the duty-free recovery at airports is expected to hedge against adverse effects

Due to the impact of the base figure brought about by proxy purchases in the same period last year, it is expected that the overall sales of 1H24 outlying islands duty-free will continue to be under pressure. The sales data for Hainan Outlying Islands Duty Free in March (-36% year over year) and the first day of May 1st are still significant year-on-year declines. However, considering that inbound and outbound travel has now resumed at an accelerated pace, the optimization of high gross margins+rent agreements for airport products is expected to hedge against the adverse effects of tax exemptions on the outlying islands. Looking at the medium to long term, China Galaxy Securities believes that the underlying logic of the duty-free industry has not changed. China's China Free (01880) card is the core domestic duty-free traffic channel. As consumption recovery progresses, the multi-dimensional layout of the outlying islands+airport+online+city will open up long-term space.

Hotels: Strong demand for leisure, continuing to wait for business demand to stabilize

According to STR data, for the week ending 4.20, domestic hotel OCC was 75.0%, +1.7 pct year on year; ADR was 460.3 yuan/room, -6.0% year on year; RevPAR was 345.4 yuan/room, 4.4% year on year. Overall, the overall occupancy rate of domestic hotels in the first 4 weeks of April was slightly higher than in 2023, but the unit price was still weaker than 2023. Considering the polarization effects of the current off-peak season, China Galaxy Securities believes that the inflection point of the hotel boom still needs to be observed when business demand improves. It is recommended to pay attention to Huazhu Group-S (01179), Jinjiang Hotel (600754.SH), and First Travel Hotel (600258.SH).

Risk warning: risk of continued macroeconomic downturn; risk of changes in industry regulatory policies; risk of new business development falling short of expectations.