Recently, Beststudy Edu Group (03978.HK) has experienced a significant decline in its stock price, reaching a new low since April. According to the company's response, "the industry is relatively prosperous, summer enrollment is smooth, the company's operation is normal and improving, and the profit warning announcement is a voluntary disclosure in the Hong Kong stock market, and no negative news about the company has been found." This year, many brokerage firms have successively published their first coverage reports on Beststudy Edu, giving it a 'buy' or 'recommendation' rating.
According to a research report by Huaxi Securities, the total market size in Guangzhou and Shenzhen has reached billions, and has strong growth potential. As a leading enterprise in the region, Beststudy Edu Group may have greater development opportunities. The K12 education market in Guangzhou is expected to reach 41.1 billion yuan in 2024, and is expected to reach 56.4 billion yuan in 2028, corresponding to a compound annual growth rate (CAGR) of 8.7% from 2023 to 2028. The K12 education market in Shenzhen is expected to reach 45.4 billion yuan in 2024, and is expected to reach 75.3 billion yuan in 2028, corresponding to a CAGR of 13.6% from 2023 to 2028. Under the influence of the 'dual reduction' policy, a large number of non-compliant education and training institutions have been cleared out of the market, providing compliant leading enterprises with a larger market share and a benign development environment. In addition, parents' investment in education continues to increase, which also promotes the expansion of the education market.
In terms of regulatory environment, many places have proposed that non-discipline profit-making licenses of compliant institutions should be fully approved. According to a research report by China Merchants Securities International, Beststudy Edu has obtained non-discipline profit-making licenses in 10 out of 11 districts in Guangzhou. The change of license from non-profit to for-profit means that part of the quality education business will be reconfirmed as income of the listed company, and the specific details have not been officially confirmed.
Before the 'dual reduction' policy, Beststudy Edu's business scope covered nine key cities in the Greater Bay Area, Beijing, Shanghai, Nanjing and other places, with a maximum revenue scale close to 2 billion yuan, 268 teaching points, and about 5,000 teachers. After the 'dual reduction' policy, Beststudy Edu proactively launched a series of quality education products, not only passed the non-disciplinary product certification of the education department, but also gained wide recognition in the market. According to feedback from research stores, summer enrollment was hot, and the campuses were full. According to a report by Huaxi Securities, 'the company's learning center can achieve slight profitability in the first year. Benefiting from demand being greater than supply after the dual reduction, the full class rate, renewal rate, number of students per class, and number of students per class have all improved. According to our calculations, the company is expected to achieve a net margin of 22% after its 1,200 square meter storefront matures.' In addition, it is learned from various recruitment channels that the company has recruited a large number of teachers through social recruitment and school recruitment, which reflects the expansion of Beststudy Edu and the high prosperity of the education industry.
The financial situation of Beststudy Edu Group shows growth. According to a research report by China Merchants Securities International in April, the company achieved revenue of 0.489 billion yuan in the 2023 fiscal year, which exceeded the average forecast by 2%, and net profit of 0.09 billion yuan, an increase of 62% year-on-year, which exceeded the expected value by approximately 7%. The company's gross margin reached 47%, a year-on-year increase of about 12 percentage points, thanks to the increase in capacity utilization rate under strong demand. Beststudy Edu's current renewal rate has reached the highest level in history, at 90%. The utilization rate of its teaching points and teachers is also high. The company's net cash is RMB 0.414 billion, and its net cash ratio is 83%, showing the high efficiency and prudence of the company's capital management. In addition, the company announced that it would distribute a cash dividend of HKD 0.035 per share, corresponding to a dividend payout ratio of 30%. This is the first time the company has resumed dividend payments since 2020, and management stated that it will maintain this dividend ratio for some time in the future.
Although the stock price has been volatile recently, Beststudy Edu Group's valuation attractiveness is still significant. According to a research report by China Merchants Securities International in April, 'according to Bloomberg's consensus forecast, Beststudy's revenue in the 2024/2025 fiscal years will reach RMB 0.637/0.849 billion, and its net profit will reach RMB 0.135/0.186 billion, an increase of 49%/38% year-on-year. The current valuation is 16/12 times the 24/25 P/E ratio, while the average of other leading companies is 26/18 times.' A research report by Huaxi Securities in July gave the company a valuation of 25 times its 2025 earnings, corresponding to a target price of HKD 6.18, showing market confidence in the company's future development.