机构：广发证券

　　评级：Buy (maintained) 

　　Maintain Buy Management expects ~25% revenue growth and not less than 25% adjusted net profit growth, even if the company cannot get a zero income tax rate for its schools in FY18, suggesting our SG&A expenses ratio is conservative. Management has set a target of 50,000 students for FY19. We revise up our adjusted net profit estimates for FY18-20 by 59% given higher student enrolment and a lower SG&A expenses ratio. We lift our target price from HK$5.70 to HK$7.00, representing 26.5x FY19E P/E (vs 25.4x previously), still based on 1.1x PEG. We continue to like Wisdom Education’s (WEDU) Guangdong-focused expansion strategy, which should allow it to leverage on its brand equity in Dongguan and Huizhou. We also think expansion within its home province will be easier than cross-region expansion. Its highly visible pipeline makes it stand out from peers. Catalysts: 1) likely inclusion in the Shenzhen-HK Stock Connect list at the next review; 2) M&A. 

　　Highly visible pipeline WEDU plans to open its Yunfu and Guangan schools in FY19 as well as Chaozhou and Kaiping schools in FY20. In addition, the company is seeking 4-5 new projects in Guangdong. It will also proceed in negotiations with the Zengcheng and Zhaoqing governments to finalize their new school sites based on framework cooperation agreements. We therefore think WEDU stands out from its peers given its highly visible pipeline. Moreover, its medium-term growth outlook is less dependent on M&A. 

　　 FY18 guidance WEDU expects 25% revenue growth driven by 30% student growth, but partly offset by lower tuition fees from the acquired Jieyang school. Adjusted net profit growth rate will depend on its effective tax rate. The company has chosen the not-for-profit model for its high schools under the Revised Law for Promoting Private Education (RLPPE). However, the tax authority has not yet issued a “tax free certificate” to the company as the Guangdong government has not released the details of the RLPPE. Even if the company cannot get a zero income tax rate for its schools, management still expects adjusted net profit growth to be not be less than revenue growth, suggesting our SG&A expenses ratio is conservative. If the company can get a zero income tax rate for its schools, then adjusted net profit growth rate would be above 30%. 

　　Targeting 50,000 students in FY19 Based on student enrolment growth at existing schools (around 8,000 student additions) and the opening of the Yunfu and Guangan schools (around 1,500 student additions), management targets to grow its student enrolment from 41,180 in FY18 to around 50,000 in FY19. We think our estimate of 47,390 students in FY19 is conservative and raise our estimate to 49,000 students. 

　　 FY19 will be a big tuition fee year WEDU plans to raise tuition fees at its Huizhou school, Jieyang school and its three schools in Dongguan in FY19. In FY17, three Dongguan schools raised their tuition fees by roughly 20%. Also, tuition fees at Tung Wah, the company’s major competitor in Dongguan, are now 16-21% above the company’s fees. We currently assume a 15% tuition fee increase for the three Dongguan schools, Huizhou and Jieyang schools in FY19. We estimate these five schools will contribute around 91% of total tuition fees and expect 7% ASP growth in FY19. 

　　Risks: 1) A surge in teacher costs; 2) policy risks; 3) an oversupply of private schools; 4) poor academic results; 5) the majority of the company’s income comes from three schools in Dongguan