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　　机构：麦格理

　　Conclusion 

　　FY17 revenue increased 7% to Rmb478m and missed consensus by 4%. Core net profit grew 32% yoy to Rmb310m, 5% ahead of consensus estimates. The total number of students grew 26% yoy to 41,120, attributable to the newly acquired Chongqing Electronic, which contributed to one month of Minsheng’s FY17 revenue. Management is carrying out the registration procedures for Anhui Wonder and guides to consolidate the school in mid2018. We cut our FY18/FY19 EPS by 23%/25% due to the delayed revenue contribution from Anhui Wonder and the lowered enrolment and margin assumptions. We lower our DCF-based TP from HK$2.05 to HK$1.70. We transfer coverage to Wendy Huang from Ivy Luo. 

　　Impact

　　FY17 revenue/core net profit up 7%/32% yoy. Revenue increased 7% yoy to Rmb478m, driven primarily by 7-8% yoy organic growth in number of students enrolled. The total number of students grew 26% yoy 41,120, attributable to consolidation of Chongqing Electronic Information College, which completed all registration procedures in Feb-2018. Net profit grew 7% yoy to Rmb260m, negatively impacted by the listing-related expense as well as unrealised exchange losses. Core net profit increased 32% yoy to 310m, due partially to the larger amount of government grants recognized in 2017. 

　　To focus on higher education and expand network.  In Aug-2017, Minsheng announced the acquisition of Anhui Wonder University, which has not been consolidated due to prolonged government registration procedures. Meanwhile, Chongqing Electronic Information College completed all the registration procedures within four months. Minsheng guides to continue focus on expanding its school network in the under-served formal higher education market, with a priority in schools with undergraduate programs. Management targets to close 2-3 higher education acquisitions each year. 

　　 Diversifying revenue stream by expanding in to high school education. Minsheng is also expanding into high school education in Shandong province. The company announced establishment of Minsheng Laoling High School, with total capacity of 3,000 students. The school plan to accept the first batch of 600 students in the 2018/19 school year. Minsheng also acquired Shouguang Bohai Experimental School for a total consideration of Rmb156m. Bohai Experiential was a branch school of Shouguang No.1 Secondary School, with ~2,500 student enrolment. High schools have lower margins compared to higher education, but management see stronger growth potential in this market. We estimates 5%/6% revenue contribution in FY19/FY20.

　　Earnings and target price revision 

　　We cut FY18/FY19 EPS by 23%/25%, and lower our DCF-based target price from HK$2.05 to HK$1.70, which implies 19x FY18E PER. Price catalyst 

　　12-month price target: HK$1.70 based on a DCF methodology. 

　　Catalyst: Acquisition and new school development. Action and recommendation 

　　Maintain Outperform

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