T.h.capital maintain a major education rating

Beijing Time August 16 Evening News, Hong Kong investment company T.h.capital today released a study to maintain the education of the Stock (Nyse:xue) "Holding" rating.

The following is the full report:

The second-quarter results of the major education report were better than the average analyst forecast, largely because the company was focused on improving operational efficiency. In the second quarter, the school's education revenue was 114.6 million dollars, slightly better than the analyst's average estimate of 112.2 million dollars. Earnings per share far exceed analysts ' average expectations. We believe that the improvement in operational efficiency will be sustainable and conducive to the 2013 and 2014 profitability gains. At present, we believe that the education management needs to solve the problem of business development. While we are optimistic about the outlook for profitability, we have seen no sign of significant progress in any business from the relatively weak third-quarter and full-year forecasts. Therefore, we will continue to wait and see and maintain the "hold" rating.

-Increase margin forecasts for 2013 and 2014

The strategy of learning to focus on improving operational efficiency and profitability has been effective. In the second quarter, school hours per square metre of the learning Center grew 7.6% to 12.8 hours, up from 11.9 hours in the same period of 2012. The year-on-year growth rate for the first quarter was 3.3%. The number of hours per full-time teacher grew 9% to 326 hours, up from 299 hours in the same period of 2012. The year-on-year growth rate for the first quarter was 5.2%. The second quarter of the education of the non-US general accounting standards operating profit margin of 18.8%, higher than the 2012 period of 13.2%, also higher than our estimated 16.8%. As a result, earnings per share were $0.26 trillion, higher than the average analyst forecast of $0.24 and our projected $0.23 trillion. We are expected to raise the 2013 annual non-US general accounting standards operating profit margin from 3.8% to 4.5%, and to increase the 2014 forecast to 5.8%.

-Weak third-quarter earnings forecasts reflect the challenges of business development

The education of the year 2013 annual revenue forecasts from 342 million to 352 million U.S. dollars slightly up to 347 million to 352 million U.S. dollars, the year-on-year growth of 18.3% to 20%, and analysts on average expected to be 347.5 million U.S. dollars. The company also adjusted third-quarter earnings forecasts to 79 million to $81 million, up 13.7% to 16.5% per cent year-on-year, below analysts ' average of 81.6 million dollars.

We believe that education may face the challenge of revenue growth. Although the major education program opened 20 to 30 new learning centers in the fourth quarter, we think the recent rise in momentum is very limited because the company did not raise the online revenue forecast to an increase of 20% per cent year-on-year. In the past, the revenue growth of major education has mainly come from the newly opened learning centres, but we think that the current education has begun to try new choices, such as developing smaller groups, introducing advanced models and using the large amount of capital held to acquire them.

According to management, the big education program opens 30 to 40 learning centers in fiscal year 2013. As a result, we will reduce the 2014 revenue growth forecast from 21.4% to 19.5%, roughly unchanged from 2013 's 19%.

-Adjust expectations

We will learn big education in the third quarter revenue forecast from 81.6 million U.S. dollars down to 79.7 million U.S. dollars, the U.S. general accounting standards per share earnings are expected to rise from a loss of 0.23 U.S. dollars to a loss of 0.01 U.S. dollars. We will be learning Big Education 2013 annual revenue forecast from 347.8 million U.S. dollars to 349 million U.S. dollars, the expected earnings per share from 0.11 U.S. dollars to 0.20 dollars. We expect the 2014 revenue and earnings per share to be $416.9 million and $0.44, compared with $422.4 million and $0.35. We expect the 2015 revenue and earnings per share to be 503.1 million dollars and 0.60 dollars respectively.

-Valuation

With a 2014 earnings forecast of $0.44 trillion, the current 2014-year prospective earnings ratio for education is 9.1 times times higher. Excluding about $3.40 trillion in cash per share, the 2014-year prospective earnings ratio for education is 1.4 times times higher. While valuations are attractive, we believe the company is uncertain about balancing growth and profitability, and that equities are illiquid. If education is to achieve higher growth rates and maintain profitability stability, we believe that the company's shares will again attract investors ' attention. At present, we maintain a "hold" rating on the major education stock and look forward to progress in business development. (Zhang Fan)