Morgan Stanley initiated coverage on China New Higher Education Group (02001) with an "overweight" rating and a target price of HK$3.8.
The research house likes China New Higher as (1) it operates 100% higher education institutions with a higher-than-national-average employment rate to attract student applicants, (2) the consolidation of newly acquired schools will drive up FY2019 and FY2020 revenue growth to 86%/26% YoY, (3) two of its schools (contributing 41% of the
company's FY2019 revenue) are located in the top five provinces for a private higher education investment opportunity, and (4) it's also a beneficiary of the positive vocational education trend, as three of its schools are higher education vocational education institutions.
Although its gearing ratio is high (46% at end-February 2019), the recently completed share placement in April (total of HK$388.5mn) provides some relief. Morgan noted the key risk is further impairment on its Xinjiang acquisition prepayment if the company cannot fully get back its down payment to the seller.