Shenwan Hongyuan Group: Maintains "Buy" rating on NEW HIGHER EDU (02001) and raises target price to 3.38 Hong Kong dollars.

Shenwan Hongyuan Group released a research report stating that NEW HIGHER EDU (02001) has announced its annual report for the 25th fiscal year, with a total revenue of 2.6 billion yuan, a year-on-year increase of 7.8%. The adjusted net profit was 812 million yuan, a year-on-year increase of 5.2%, meeting the bank's expectations. The bank has raised the company's profit forecast for the 26th to 27th fiscal years to 880 million yuan and 1 billion yuan (originally forecasted at 800 million yuan and 830 million yuan), with an additional profit forecast of 1.14 billion yuan for the 28th fiscal year. The target price has been raised to 3.38 Hong Kong dollars (originally 2.99 Hong Kong dollars), maintaining a buy rating. The main points of Shenwan Hongyuan Group are as follows: Insist on high-quality education, continuously optimize student structure In the 25th fiscal year, the company had 139,000 students, a decrease of 0.6% from the 24th fiscal year. The student structure continued to be optimized, with the proportion of undergraduate freshmen in the 25th fiscal year increasing by 4 percentage points compared to the previous year, and the proportion of undergraduate students in the 25th fiscal year increasing by 1 percentage point. As the tuition fees for undergraduate students are higher, the average tuition fee increased by 8.1% to 16,700 yuan per year. The company also increased the improvement of educational hardware, with accommodation fees increasing by 5.2% to 1,998 yuan per year. The increase in tuition and accommodation fees drove the revenue to increase by 7.8%. Continuously increase educational investment and improve the level of education In the 25th fiscal year, the company's revenue cost was 1.68 billion yuan, a year-on-year increase of 9.2%, exceeding the revenue growth rate by 1.4 percentage points. Among them, labor costs were 1.08 billion yuan, a year-on-year increase of 14.7%. The bank estimates that teacher costs increased by 14.7% to 720 million yuan. The company's educational costs have grown significantly, related to the company's strategy of insisting on high-quality education. In addition, depreciation and amortization costs increased by 10.8% to 260 million yuan. The company has increased the renovation and upgrade of school hardware facilities, providing students with a better learning and training environment. Due to the increase in costs faster than the increase in revenue, the company's gross profit margin shrank by 0.8 percentage points to 35.5%. Cost increases reaching a peak, profitability may rebound The company insists on a strategy of high quality and price, and capital expenditures have been rapidly increasing since the 22nd fiscal year, reaching a peak of 920 million yuan in the 24th fiscal year. Capital expenditures in the 25th fiscal year fell to 690 million yuan. The bank predicts that as the company's schools gradually pass teaching evaluations, the company's normalization of capital expenditures may further decrease in the future. The overall increase or decrease in capital expenditures will fluctuate with changes in the company's construction plan for Hainan schools. The bank predicts that with the decrease in normalized capital expenditures, the company's operating efficiency will also improve. The student-teacher ratio in the 25th fiscal year was approximately 19.1:1, close to the standard set by the education authorities. The bank judges that the period of rapid cost growth for the company has ended, and the company's gross profit margin will restart to expand from the 26th fiscal year. Risk warning: Tuition fee increases are lower than expected; the progress of transforming profit-making institutions into schools is lower than expected.