China Chunlai Education Group Co., Ltd., together with its subsidiaries, provides private higher education services in the People's Republic of China. It operates three colleges in Henan Province; two college in Hubei Province; and one college in Jiangsu Province. The company was founded in 2004 and is headquartered in Shangqiu, the People's Republic of China. China Chunlai Education Group Co., Ltd. is a subsidiary of Chunlai Investment Co., Limited.

China

China Chunlai Education Group Co., Ltd.

Consumer Cyclical

The company pays dividends from time to time. It has paid dividends in less than half the past ten years. Dividend per share (DPS) has grown yearly, but the dynamics are somewhat mixed. In the past 12 months, the dividend yield has been strong and significantly above its peers. On average, the company pays dividends annually. 

1969.HK reported revenue of CNY 1 631mn in the last 12 months, up 7% from FY23. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS grew 12% from FY23 to CNY 0.64. Market expects EPS to reach CNY 0.74 in FY24.

The stock's performance has been mixed in the past six months, with growth following a decline. There is no clear price trend compared to its global peers from the same sector and industry (as shown above). It has underperformed this peer group by 3ppts over six months and grown 2ppts slower in the past month. At the same time, the stock's performance relative to its the peers from the same country and sector is different. It underperformed these peers by 11ppts over six months and grew 5ppts slower in the past month. With respect to the stock's valuation against its peers, its overall price performance is neutral.

The company has reported very strong EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 67.6% in the last 12 months, a decline from 70.2% in FY24. 

Historically, 1969.HK has reported very strong net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 47.7%, a growth from 45.7% in FY23. 

In the last 12 months, the return on capital employed (RoCE) declined to 17.7%, above the peers. The consensus estimate for FY25 for RoCE is 24.4%, again ahead of the peers. 

China Chunlai Education Group Co., Ltd. reported a return on equity (RoE) of 20.0% in the last 12 months, down from 21.7% in FY24. The market consensus projects an RoE of 24.4% in FY25, again ahead of its peers. 

Another important profitability metric, return on assets (RoA), amounted to 10.7% in the last 12 months, a decrease from 11.4% in FY24. The market analysts predict that RoA will be 13.1% in FY25, again stronger than its peers. 

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 2.7 in the past several years. This ratio implies a strong shareholder value creation. 

The institutional, legal, and compliance risks associated with the company's country are close to minimal. In combination with rigorous business standards, shareholder rights are well protected.

1969.HK has poor trading liquidity. It will take at least a day or two for the average private investor to sell a common position under normal market conditions. Liquidity is usually quite stable and is unfavourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions. The stock has a small market capitalisation, which usually makes its trading liquidity erratic and unpredictable. 

No other major risks have been identified.

The risk of default is moderate. We note robust profitability, solid return on capital, and solid cash flow generation, among the positive credit factors. Among the negative credit factors, we point to weak positions in its industry, slow historical revenue growth, excessive margin volatility, and poor working capital management.

In highly turbulent market conditions, 1969.HK is moderately volatile. In other words, the stock will fall more than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be moderate. 

In normal market circumstances, 1969.HK is volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will move much wider than the index. The stock's losses on its worst days (less than 1-5% of the time) will range from moderate to notable. We would also like to highlight the notable intraday volatility of the instrument. 

From both historical and forecast perspectives, the stock is underpriced compared to similar stocks. Specifically, the stock is 'cheap' on P/E, undervalued on EV/EBITDA, underpriced on P/FCF. 

China Chunlai Education Group Co., Ltd.

HK$ 4.2

5

China Chunlai Education Group Co., Ltd.

HK$ 4.2

5

Risk factor

Profitability factor

Risk / Profitability

Risk factor

Profitability factor

HK$ 4.2

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