Keep a good future stock rating on the sidelines

Morgan Stanley today released a study to keep the Nyse:xrs stock rating on a "hold-see" (equal-weight) unchanged, while raising its target price from $25.60 to $26.30.

The following is a summary of the contents of the report:

Fiscal year 2014: solid implementation + Robust outlook

Changes：

-The target price was raised from USD 25.60 to $26.30;

-quarterly earnings per share of fiscal year 2015 and 2016 are expected to increase by 3% and 4% respectively.

Analysis：

Good performance in the coming fourth quarter is mainly driven by the growth of registered students and the cost control measures. We believe that a good future is still the main beneficiary of the growth of China's primary and secondary school counselling services market. We maintain a good future "hold-and-wait" rating unchanged.

-Robust revenue growth: a good future in the fourth quarter the number of students registered increased by 39% Year-on-year, mainly due to the strong demand for small class teaching business. Business in cities outside Beijing and Shanghai continued to be strong, with 40% per cent of the total revenue from small-class classes, flat to the previous quarter, up from 29% in the same period last year. In addition, the Shanghai business continued to perform well and Beijing continued to show signs of recovery. In the 2014 fiscal year, the good future of the total number of students registered more than 100,000 people (up 32%), the quarter average price growth of 5%, compared to the previous quarter of the quarter-on-quarter growth of 3%, the same period last year for the quarter-on-quarter growth of 4%.

-profit margins are better than expected: Operating profit margins rose 7% to 17% in the fourth quarter from a year earlier, affected by cost-containment measures and operating leverage. In the 2014 fiscal year, the operating profit margin for the good future was 18%, up 4% from the previous fiscal year. Profit margins for the good future have risen for two consecutive quarters.

-Sales growth prospects are good: a good future forecast, the first quarter of fiscal year 2015 will increase year-on-year growth of 40% to 44% (2015 in the first quarter of the year more than a week in the same period, adjusted for year-on-year growth of 32% to 35%); Deferred revenue was 1.32% billion, up 29% per cent year-on-year.

-Maintain a "hold-see" rating: Based on the cash flow discounting method, we set the target price for a good future at $26.3. In view of the good quality of the future brand and strong implementation, we believe that the company is in a good position, will be able to use the growth of market demand and the Chinese primary and secondary school services market integration trend. However, with the expected earnings per share in the 2015 fiscal year, a good future of 27 times times earnings, meaning its valuations are at a high level, so we will wait for better entry points.