Sectors:

Air, Automobiles (ZhangJing)

TMT, Education, Finance (Terry Li)

Automobile & Air (ZhangJing)

This month I released 4 updated reports of SIA (600009.CH), Air China(AC) (753.HK), Jonjee Hi-Tech (600872.CH) and China Eastern Airlines (670.HK), which got success by their unique Competitive edge. Among them, we prefer SIA first.

Unlike the restricted aeronautical business, the SIA's non-aeronautical business recorded a sustained rapid growth up to RMB5.34 billion, with a surge of 23.2% yoy. Wherein, the commercial rental revenue increased by 33% yoy, up to RMB3.986 million, mainly benefiting from the increased proportion of international tourists with stronger consumption intention and the Company's sustained management, site optimization and adjustment of commercial retail brands. Of the commercial rental, over RMB3.5 million are from duty-free stores, the total volume and per customer transaction (RMB300/per customer) of which both recorded a rapid growth, with a growth rate of around 40% and 20% yoy, respectively, reflecting that duty-free stores in Pudong Airport were becoming a shopping hotspot for international routes passengers.

TMT, Education & Finance (Terry Li)

I released four reports on Travelsky Technology (696.HK), HC Group (2280.HK), China Education Group (839.HK) and China Maple Leaf Education (1317.HK). We highly recommend China Education Group. On Mar 20, the Group has announced to acquire the remaining 49.09% equity interest of Quancheng University at a total consideration of RMB 223 million. Quancheng University is located in Penglai city, Shandong province, and the Independent college of Jinan University. Among those independent colleges in Shandong, the admission marks for bachelor-degree in 2018 (science track) were the highest, 454. Besides, the tuition of the bachelor-degree program was only RMB 11,000, lower than the average of private universities and independent colleges in Shangdong (RMB 13,500), meaning there will still be room to grow. Finally, the utilization of the school was just 86%, and the remaining space available can further accommodate about 1,400 students. The maximum capacity of the campus is approximately 23,000 students more after the renovation and building new dormitories. Thanks to the potential increase in tuition and student enrollment, we believe it is a satisfactory acquisition target. Besides, on Mar 21, the Group announced the issuance of a HK$2,355 million five-year convertible bond with an annual interest rate of 2% and a conversion price of HK$14.69 per share. The previous gearing ratio target the Group provided was 40%-50%. We expect the gearing ratio will reach 35%-40% after this issuance of bonds, implying that there will still be room for further financing. In addition, as it is the convertible bonds to be issued, the gearing ratio may reduce once the conversion is done, enabling the Group for another financing. Assuming the acquisition price of an new school takes RMB 600-700 million, the capital financed will be enough for acquiring 3 new schools.

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