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PREPARED AND PUBLISHED BY NON-US BROKER-DEALER(S): BNP PARIBAS SECURITIES (ASIA) LTD THIS MATERIAL HAS BEEN APPROVED FOR U.S. DISTRIBUTION. ANALYST CERTIFICATION AND IMPORTANT DISCLOSURES CAN BE FOUND AT APPENDIX ON PAGE 45
Ample room for growth
n Strong demand for quality education in China
Rising disposable incomes have increased demand for quality
education and overseas education opportunities in China. As per
Frost & Sullivan, per capita expenditure on fundamental education
saw a 17.8% CAGR in 2009-13. Maple Leaf’s tuition was cheaper
than the average for the top 5 international schools in the 2013-14
school year, according to Frost & Sullivan, and we see it as well
placed to benefit from rising demand from the middle income group.
n Dual-diploma and dual-curriculum
Maple Leaf’s high school education, which enables its graduates to
get a fully accredited British Columbia high school diploma along with
a Chinese high school diploma, is considered one of its core
offerings. In the 2013-14 school year, more than 95% of its high
school graduates got into universities/colleges globally and about
51% into the world’s top 100 universities, as per company estimates.
n Clear expansion plan
Maple Leaf had 40 schools in nine cities as at 1-Sep-14. It is
developing 12 new schools and expects operations to commence
over the next three years. The company plans to expand, in part,
through an asset-light approach by partnering with third parties,
particularly local governments, to increase its returns on investments.
n We initiate coverage with BUY
Based on our FY15/16E revenue growth of 17.2% and 15.0%, we
forecast that adjusted net profit will grow 12.0% to RMB144.5m in
FY15 and 17.2% to RMB169.5m in FY16. We initiate coverage with a
BUY rating. Our HKD2.91 target price is based on a 20x CY15E P/E.
Maple Leaf adjusted net profit and y-y growth
Sources: China Maple Leaf Educational Systems; BNP Paribas estimates
(10) %
0 %
10 %
20 %
30 %
0
50,000
100,000
150,000
200,000
250,000
FY12 FY13 FY14 FY15E FY16E FY17E
(%)(HKD '000) Adjusted net profit (LHS)
Adjusted net profit growth (RHS)
16 JANUARY 2015
INITIATION 45 HONG KONG HONG KONG / CONSUMER SERVICES
CHINA MAPLE LEAF EDUCATIONAL 1317 HK
BUY
TARGET PRICE HKD2.91
CLOSE HKD2.12
UP/DOWNSIDE +37.3%
HKD CHANGE IN TP %
HOW WE DIFFER FROM CONSENSUS MARKET RECS
TARGET PRICE (%) (1.4) POSITIVE 1
EPS 2015 (%) (3.3) NEUTRAL -
EPS 2016 (%) (0.6) NEGATIVE -
Emily Lee [email protected]
+852 2825 1862
Our research is available on Thomson One, Bloomberg, TheMarkets.com, Factset and on http://eqresearch.bnpparibas.com/index. Please contact your salesperson for
authorisation. Please see the important notice on the back page.
KEY STOCK DATA
YE Aug (RMB 1000) 2014A 2015E 2016E 2017E
Revenue 540,269 633,412 728,372 838,260
Rec. net profit 129,007 144,547 169,452 202,110
Recurring EPS (RMB) 0.16 0.11 0.13 0.15
EPS growth (%) 20.9 (34.0) 17.2 19.3
Recurring P/E (x) 10.3 15.6 13.3 11.2
Dividend yield (%) 0.0 0.0 0.0 0.0
EV/EBITDA (x) 6.9 5.1 4.5 3.5
Price/book (x) 2.8 1.7 1.5 1.4
Net debt/Equity (%) (68.2) (85.0) (83.4) (83.8)
ROE (%) 29.2 16.4 12.3 12.9
Share price performance 1 Month 3 Month 12 Month
Absolute (%) 1.0 - -
Relative to country (%) (4.4) - -
Next results May 2015
Mkt cap (USD m) 365
3m avg daily turnover (USD m) 3.9
Free float (%) 23
Major shareholder LIANG SHERMAN SHU (54%)
12m high/low (HKD) 2.95/1.92
3m historic vol. (%) 82.9
ADR ticker -
ADR closing price (USD) -
Issued shares (1000) 1,334,000
Sources: Bloomberg consensus; BNP Paribas estimates
(38)
(28)
(18)
(8)
1.73
2.23
2.73
3.23
Nov-14
(%)(HKD)China Maple Leaf Educational
Rel to MSCI Hong Kong
China Maple Leaf Educational 1317 HK Emily Lee
2 BNP PARIBAS 16 JANUARY 2015
Investment thesis
The international school market in China is growing rapidly. Total revenues increased at about a 23.0% CAGR in 2009-13 to RMB18.4b, compared to about an 18.4% CAGR for China’s fundamental education industry, according to Frost & Sullivan.
Maple Leaf had market shares of approximately 9.0% in the highly fragmented international high-school market in China and about 7.6% in the international school market in China in terms of student enrolments at the end of the 2013-14 school year, according to Frost & Sullivan. As it targets families with higher-than-average incomes, its revenue and profitability could grow due to: 1) tuition increases; 2) student enrolment increases; 3) utilisation ramp-up at existing schools; and 4) more new schools. We expect average tuition per student to increase by 2.9-3.8% and student enrolments to grow by 11.2-14.1% in FY15-17, with the utilisation rate at 61.7% in FY17 and net addition of two schools in Yiwu in FY15, and 10 schools in Pinghu, Yiwu and Xi’an in FY16-17.
Catalyst
Key driver of demand for international schools is the rising income of Chinese households and growing expatriate population in China combined with their ability to afford higher tuition fees. Favourable government policies towards private education could provide opportunities for setting up additional schools.
Risks to our call
Rising competition may lead to market share loss. Ability to increase tuition fee levels. Failure to renew existing China/BC certifications and failure to obtain other necessary approvals, licences and permits from the government pose downside risks to our call.
Company background Key assumptions
China Maple Leaf Educational Systems Limited is a Chinese
international school operator. It operates seven high schools,
10 middle schools, nine elementary schools, 12 preschools and
two foreign-national schools across nine cities in China.
2015E 2016E 2017E
Student enrolment increase (%) 14.1 11.2 12.5
Average tuition fee increase (%) 3.6 3.8 2.9
Utilisation (%) 59.1 62.4 61.7
New schools 2 6 4
Source: BNP Paribas estimates
Principal activities (FY15 revenue split on our estimates) Earnings sensitivity
----- Base ----- ----- Bear ----- ----- Bull -----
FY15E FY16E FY15E FY16E FY15E FY16E
Student enrolment 15,423 17,156 13,881 15,440 16,965 18,871
Change (%)
(10.0) (10.0) 10.0 10.0
Average tuition fee (RMB)
35,767 37,142 32,190 33,428 39,344 40,857
Change (%)
(10.0) (10.0) 10.0 10.0
Teaching staff cost (RMB m)
213.5 244.0 234.8 268.4 192.1 219.6
Change (%)
10.0 10.0 (10.0) (10.0)
Gross profit (RMB ’000s) 280,602 324,854 154,445 179,383 417,791 483,068
Change (%)
(45.0) (44.8) 48.9 48.7
Key executives Source: BNP Paribas estimates
Age Joined Title
Shu Liang Sherman Jen
60 2007 Chairman and Co-CEO
Zhenwan Liu 58 2014 Vice Chairman, President and Co-CEO
Jingxia Zhang 57 2008 Senior Vice President and Co-CFO
James William Beeke
64 2014 Vice President and BC programme Superintendent
http://www.mapleleafschools.com
A 10% increase in student enrolment, all else being equal,
is likely to increase our FY15/16E gross profit by
19.7%/19.6%.
A 10% increase in average tuition fee, all else being
equal, is likely to increase our FY15/16E gross profit by
19.7%/19.6%.
A 10% increase in staff cost, all else being equal, is likely
to decrease our FY15/16E gross profit by 7.6%/7.5%.
High school tuition (52.52%)
Middle school tuition (15.66%)
Elementary school tuition(12.14%)Foreign national school tuition(2.53%)Preschool tuition (4.24%)
Textbooks (4.79%)
Summer and winter camp(4.04%)Other educational services(4.08%)
China Maple Leaf Educational 1317 HK Emily Lee
3 BNP PARIBAS 16 JANUARY 2015
Investment thesis
The international school market in China is growing rapidly. Total revenues grew at
about a 23.0% CAGR in 2009-13 to RMB18.4b, compared to about an 18.4% CAGR
for China’s fundamental education industry, according to Frost & Sullivan. The swift
growth is primarily driven by increasing disposable incomes in China, emphasising
the importance parents place on high quality and overseas education opportunities.
Frost & Sullivan expects China’s international school market to grow rapidly at an
11.8% CAGR over 2013-17, reaching about 244,600 students enrolled in 2017,
compared to an 8.6% CAGR for total student enrolments in private fundamental
education in the same period.
Maple Leaf was the first-ever offshore high school certified by the Ministry of
Education of British Columbia, Canada, or BCMOE, offering dual-curriculum and
dual-diploma education. Over the past 19 years, Maple Leaf has built up a strong
and reputable brand name in providing a comprehensive education that immerses
students in Chinese and Western cultures. Maple Leaf had market shares of
approximately 9.0% in the highly fragmented international high school market in
China and about 7.6% in the international school market in China in terms of student
enrolments at the end of the 2013-14 school year, according to Frost & Sullivan. As it
targets families with higher-than-average income, its revenue and profitability could
grow due to 1) tuition increases, 2) student enrolment increases, 3) utilisation ramp-
up at existing schools and 4) more new schools. We expect average tuition per
student to increase by 2.9-3.8% and student enrolments to grow by 11.2-14.1% in
FY15-17, with the utilisation rate at 61.7% in FY17 and net addition of two schools in
Yiwu in FY15, and 10 schools in Pinghu, Yiwu and Xi’an in FY16-17.
Key market drivers of the international school market
§ Rising income of Chinese households – The per capita disposable income of Chinese urban households has increased rapidly along with continuous economic
growth and urbanisation in China. This is a key driver of demand for international
schools as more families are able to afford higher tuition fees.
§ Higher demand for a bilingual and multicultural education – Chinese parents’ increasing desire to send their children abroad to gain broader cultural exposure
and improve future employment prospects has increased the demand for English-
language education in China.
§ Favourable government policies – In the Summary of the 2013 National Conference on Education, the central government stated its intention to abolish
all discriminatory policies against private education and stated that private
investment will be encouraged to develop the country’s education system. Some
local governments have implemented favourable policies, such as granting free
land and providing financial support, to attract well-known private schools to set
up local branches and develop campuses.
Also in 2013, the Chinese government announced that it would relax its “one-
child policy” to stimulate birth rates by allowing families to have two children if one
of the parents was an only-child. We expect demand for high-quality K-12 (also
known as fundamental education) private education in China to continue to
increase.
§ Growing expatriate population in China – The number of expatriates has been growing as more people migrate to China for business opportunities. Expatriate
demand for international schools will increase, given their preference to receive
an education similar to that in their home countries. According to the Ministry of
Human Resources and Social Security of China, the number of expats with work
permits reached 329,000 in 2013, up from 252,000 in 2006, representing a 3.9%
CAGR in 2006-13. Excluding workers from Hong Kong, Macau and Taiwan,
foreign workers grew from 180,000 in 2006 to 244,000 in 2013, a 4.4% CAGR.
China Maple Leaf Educational 1317 HK Emily Lee
4 BNP PARIBAS 16 JANUARY 2015
EXHIBIT 1: Number of expatriates in China with work permits
Source: Ministry of Human Resources and Social Security
Maple Leaf’s competitive strength
§ Maple Leaf is China’s largest international school operator, with a market share of approximately 7.6% of student enrolments in the 2013-14 school year, compared
to the second-largest operator’s market share of about 2.7%, according to Frost &
Sullivan. In the international high school market alone, Maple Leaf had a market
share of about 9.0% in terms of student enrolments in the 2013-14 school year.
EXHIBIT 2: Top five international schools in China, ranked by student enrolment in the 2013-14 school year
Ranking School operator Student enrolment 2013-14
school year Market share 2013/2014
school year
(persons) (%)
1 Maple Leaf 13,513 7.6
2 Nord Anglia 4,859 2.7
3 Shanghai United 4,737 2.7
4 Dulwich 4,162 2.3
5 Yew Chung 3,866 2.2
Note: The data in the above table is based on statistics as of 31 August 2014. The ranking is based on student enrolments, which only takes into account the international sections of each school operator and excludes domestic or national sections which are beyond the definition of international schools set out in the industry analysis section. Source: Frost & Sullivan
EXHIBIT 3: Top five international high schools in China, ranked by student enrolments in the 2013-14 school year
Ranking School operator Student enrolment 2013-14
school year Market share 2013-14
school year
(persons) (%)
1 Maple Leaf 5,836 9.0
2 Dulwich 1,476 2.3
3 NIT Education 1,462 2.2
4 Huamei 1,432 2.2
5 Shanghai American 1,425 2.2
Note: The data in the above table is based on statistics as of 31 August 2014. The ranking is based on student enrolments, which only takes into account the international sections of each school operator and excludes domestic or national sections which are beyond the definition of international schools set out in the industry analysis section. Source: Frost & Sullivan
§ Its dual-curriculum and dual-diploma high school education, enabling its graduates to receive a fully-accredited British Columbia (BC) high school diploma
and a Chinese high school diploma, is considered a core component.
§ Over 95% of its high school graduates were admitted to universities and colleges around the world and about 51% of them were admitted into the world’s top 100
universities (as ranked by Quacquarelli Symonds) in the 2013-14 school year,
0
50
100
150
200
250
300
350
400
2006 2007 2008 2009 2010 2011 2012 2013
Foreign Worker Worker from HK, Macau and TaiwanPersons ('000)
China Maple Leaf Educational 1317 HK Emily Lee
5 BNP PARIBAS 16 JANUARY 2015
based on the company’s estimates. This track record could help to boost its brand
and confidence among parents and students.
§ Maple Leaf had 40 schools as at 1 September 2014, covering preschool, elementary, middle, high school and foreign national schools. This
comprehensive academic offering allows Maple Leaf to retain students through
their school education, providing it with high visibility on future enrolments and
revenue. For each of the 2010-11, 2011-12 and 2012-13 school years, over 70%
of total graduates from its elementary schools enrolled in its middle schools, and
over 70% of total graduates from its middle schools enrolled in its high schools.
§ Since 2012, the company has implemented an asset-light expansion plan in cooperation with local partners, in particular local governments, to develop new
schools. Under the recent cooperation agreement with local governments, the
latter are responsible for acquiring campus sites and building school premises,
which could enable the company to achieve a higher return on capital.
§ Its relatively lower tuition fees compared to the top-five international schools could attract more middle income families.
EXHIBIT 4: Annual tuition fee comparison
Private fundamental education in China in
2013(1)
Average of Top 5 international schools in China in 2014-15
school year(1)
Maple Leaf 2014-15 school year
(2)
(RMB) (RMB) (RMB)
Preschools 2,650 112,060 12,000-21,600
Elementary schools 2,920 141,131 18,000-33,000
Middle Schools 4,350 156,262 21,000-43,000
High Schools 7,670 167,920 42,400-71,500
Sources: Frost & Sullivan; China Maple Leaf Educational Systems
EXHIBIT 5: Average annual tuition fees of the Top 5 international schools in China in the 2014-15 school year
Ranking School operator Preschools Elementary schools Middle schools High school
(RMB) (RMB) (RMB) (RMB)
1 Maple Leaf 16,500 20,456 26,410 49,000
2 Nord Anglia 145,200 206,000 224,400 241,500
3 Shanghai United 95,500 93,000 109,800 147,000
4 Dulwich 155,800 193,600 212,600 186,700
5 Yew Chung 147,300 192,600 208,100 215,400
Note: The data in the above table is based on statistics as at 31 August 2014. The tuition fees do not include incidental expenses, and are applicable to the 2014-15 school year. The figures are calculated by the arithmetical average of each individual branch, sector or grade as announced by school operators. Maple Leaf’s foreign national schools are not included. Source: Frost & Sullivan Report
China Maple Leaf Educational 1317 HK Emily Lee
6 BNP PARIBAS 16 JANUARY 2015
Entry barriers for the Chinese education industry
China’s fundamental education industry has relatively high entry barriers, particularly
compulsory education which is closely regulated by the Ministry of Education (MOE).
China’s school operators are required to obtain and maintain a series of approvals,
licences and permits by relevant government authorities and comply with specific
registration and filing requirements to operate education services.
The establishment of a school requires approvals under China’s Education law. The
establishment of a private school requires further approvals under the Law for
Promoting Private Education and the Implementation Rules for the Law for
Promoting Private Education.
The international school market in general has higher entry barriers, according to
Frost & Sullivan. Firstly, Chinese-foreign cooperation in operating schools or training
programmes is specifically governed by the Sino-Foreign Regulation in accordance
with the Education Law, the Occupational Education Law of the PRC and the Law for
Promoting Private Education of the PRC, and the Implementing Rules for the
Regulations on Operating PRC-foreign Schools. Any China-foreign cooperation
school and cooperation programme shall be approved by the relevant education
authorities and get the Permit for Chinese-foreign Cooperation in Operating School.
The company believes the ability to offer a dual-diploma curriculum is one of the
toughest entry barriers for school operators in the industry. The complexity comes
from the challenges of designing a curriculum that can offer courses that are
accredited by foreign and Chinese education systems and course credits duly
certified by the respective governments’ educational authorities. To establish a dual-
diploma curriculum, the approvals of both governments are required as each
education system has specific requirements and arriving at a mutual agreement is a
complicated process. Also, the school operator’s ability to design a curriculum that
can combine the requirements of both systems and minimise course overlaps for
students is a key challenge. The school operator is required to recruit and maintain
qualified teaching staff from both systems and managing two teaching teams with
very different teaching methodologies and lifestyles is considered very challenging.
Other entry barriers include the large initial investment required to construct the
campus and school facilities and the availability of land, relevant facilities and
qualified teaching staff.
China Maple Leaf Educational 1317 HK Emily Lee
7 BNP PARIBAS 16 JANUARY 2015
Proven business model with a full range of K-12 education
Maple Leaf was the largest international school operator in China in terms of student
enrolments at the end of the 2010-11, 2011-12, 2012-13 and 2013-14 school years,
according to the Frost & Sullivan Report. It operates all of its schools under the
Maple Leaf brand and offers a bilingual K-12 education with competitive tuition fees.
Well-established bilingual, dual-curriculum and dual-diploma education
One of the key competitive advantages of its business is a dual-curriculum and dual-
diploma high school education that enables graduates of its China- and BC-certified
high schools to receive both a fully-accredited BC high school diploma and a
Chinese high school diploma. Its Dalian Maple Leaf High School was the first-ever
offshore high school certified by the Ministry of Education of British Columbia,
Canada.
High level of acceptance to universities and colleges around the world
Based on the company’s estimates, over 95% of its high school graduates were
admitted to universities and colleges around the world in the 2013-14 school year. In
the same year, based on the company’s estimates, about 51% of its high school
graduates were admitted to the World Top 100 Universities (as ranked by
Quacquarelli Symonds). Over 50 universities and colleges around the world have a
memorandum of understanding with Maple Leaf to facilitate the admissions process
for its high school graduates, which, the company believes, acknowledges the
academic performance and English capacity of its students.
Extensive school network, with 40 schools in nine cities
Maple Leaf has a 19-year operating track record and has grown to 40 schools across
nine cities in China as at 1 September 2014.
EXHIBIT 6: School breakdown
FY11 FY12 FY13 31-May-14 1-Sep-14
High schools 4 5 5 7 7
Middle schools 3 3 6 7 10
Elementary schools 2 2 4 6 9
Preschools 10 10 11 11 12
Foreign national schools 2 2 2 2 2
Total 21 22 28 33 40
Source: China Maple Leaf Educational Systems
China Maple Leaf Educational 1317 HK Emily Lee
8 BNP PARIBAS 16 JANUARY 2015
EXHIBIT 7: Geographical location of Maple Leaf's network
Sources: China Maple Leaf Educational Systems; BNP Paribas
About 70% of its high school teachers are BC-certified
As at 31 May 2014, the company had a team of about 1,272 teachers, including
about 306 BC-certified teachers, about 834 China-certified teachers and about 56
English as a Second Language (ESL) teachers. Most of its teachers are full-time
teachers and part-time teachers accounted for 3% of the total number of teachers in
the nine months ended 31 May 2014. Its BC-certified teachers accounted for about
70% of its high school teachers as at 31 May 2014. All of its BC-accredited courses
are taught in English by BC-certified teachers and all of its BC-certified teachers are
certified by the BCMOE. All of its courses required for China diplomas are taught by
China-certified teachers in Chinese. Its China-certified teachers obtain certification
with relevant local educational authorities after passing applicable tests. Its ESL
teachers hold ESL certificates and train its students to improve their proficiency in
English.
China Maple Leaf Educational 1317 HK Emily Lee
9 BNP PARIBAS 16 JANUARY 2015
EXHIBIT 8: Teacher breakdown
30-Jun-11 30-Jun-12 30-Jun-13 31-May-14
(nos) (nos) (nos) (nos)
High, middle and elementary schools and foreign school
BC-certified teachers 211 246 266 306
PRC-certified teachers 404 528 651 834
ESL teachers 23 28 49 56
Subtotal 638 802 966 1,196
Preschool
Teachers qualified in childcare 61 61 70 76
Total 699 863 1,036 1,272
Source: China Maple Leaf Educational Systems
Marketing and student recruitment
Historically, Maple Leaf’s student enrolment has been driven by word-of-mouth
referrals. However, it has increasingly employed a wider range of marketing and
recruiting methods to attract students and increase enrolment.
As at 31 May 2014, it had more than nine on-campus student recruitment offices with
a total of 51 recruiting staff. Each recruiting staff must go through a marketing
training session and is responsible for answering inquiries made by interested
parents and holding promotional events to attract new students.
Also, it carries out marketing activities through third-party recruiting agents to
introduce its schools to local parents in various geographic regions. As of 31 May
2014, it had engaged approximately 119 third-party individual agents and 36 third-
party recruiting offices located throughout China. It plans to utilise new and targeted
marketing techniques such as Internet marketing, targeting potential students and
their parents and offering individual informational meetings.
EXHIBIT 9: Recruitment fair
Source: China Maple Leaf Educational Systems
High schools
The company operated seven high schools in Dalian, Wuhan, Tianjin, Chongqing,
Zhenjiang, Luoyang and Shanghai as of 1 September 2014, and had a total of about
5,836 students in its high schools as at 30 June 2014.
Its high schools are open to Chinese citizens and foreign nationals and offer a dual-
curriculum programme. As at 30 June 2014, its high school students were primarily
Chinese nationals, with the remaining approximately 3.6% being international
students. Under the BC education system, the subjects required are English,
mathematics, sciences, humanities, arts, physical education, applied skills and
college-bound electives such as applied sciences, acting, psychology, economics,
marketing and accounting. The courses required by the Chinese educational
China Maple Leaf Educational 1317 HK Emily Lee
10 BNP PARIBAS 16 JANUARY 2015
authorities are Chinese language and social studies (Chinese history, geography and
politics).
Maple Leaf has over 50 memoranda of understanding in place with different
universities and colleges abroad to facilitate the admissions process for its high
school graduates. The company believes each memorandum serves to help the
partner university/college appreciate its solid bi-cultural academic programme and
high level of students’ English language proficiency and facilitate the early
admissions process by encouraging early contacts between its high school students
and the university/college.
Beginning in the 2009-10 school year, Maple Leaf introduced single-gender
education programmes at its Dalian high school and middle school. This segregation
based on gender was intended to improve the academic performance of its students
by accounting for the subtleties of gender differences in learning, and designing
tailored learning opportunities for male and female students. We believe this
relatively new and unique school format in China could help Maple Leaf to build its
brand as a pioneer in education innovation and attract the interest of more Chinese
parents, especially parents of female students, as it could be a solution to
behavioural difficulties for both male and female students in unisex schools.
Middle and elementary schools
Maple Leaf operated 10 middle schools in Tianjin, Wuhan, Dalian, Chongqing,
Zhenjiang, Luoyang, Ordos, Pingdingshan and Shanghai, and nine elementary
schools in Tianjin, Dalian, Wuhan, Zhenjiang, Luoyang, Ordos, Pingdingshan and
Chongqing as of 1 September 2014. As at 30 June 2014, its middle schools had
about 2,941 students and its elementary schools about 2,731 students.
Its middle and elementary schools, which can only offer Chinese curricula under the
country’s laws and regulations, offer extensive English training and a bilingual
learning environment to students, preparing them for its English-intensive high
school programme. It has designed supplementary course materials to infuse
Western educational philosophy into standard Chinese course offerings. It has
developed its own model for ESL teaching at the elementary and middle school
levels and its own textbooks and learning materials, Maple Leaf English and Maple
Leaf English for Young Learners.
For each of the school years of 2010-11, 2011-12 and 2012-13, over 70% of its total
elementary school graduates enrolled in its middle school, and over 70% of its total
middle school graduates enrolled in its high schools.
Preschools
Maple Leaf had 12 preschools, 10 of which are located in Dalian and the remaining
two in Ordos and Pingdingshan as of 1 September 2014. As at 30 June 2014, its
preschools had about 1,784 students. Its preschools focus on developing an active
and healthy learning environment to help develop an inquisitive mind and emphasise
fun in the process of learning.
Foreign national schools
Its foreign national schools, open only to foreign nationals, cover the K-9 class levels
and are certified by the BCMOE. Maple Leaf has a foreign national school each in
Dalian and Wuhan with a combined total of about 221 students as of 30 June 2014.
It offers an all-English, Canadian education programme and all teachers and
principals are BC-certified educators. Its foreign schools are designed to enrich and
support the development of students from international families living in China and
students who are about to migrate to a foreign country.
Double-digit growth in total student enrolments expected in FY14-16E
Overall student enrolments grew to about 13,513 as at 30 June 2014 from about
9,120 as at the end of the 2010-11 school year.
China Maple Leaf Educational 1317 HK Emily Lee
11 BNP PARIBAS 16 JANUARY 2015
EXHIBIT 10: Maple Leaf student enrolments, capacity and utilisation rate of each school
Student enrolment (1) 30-Jun-11 30-Jun-12 30-Jun-13 30-Jun-14
Student capacity as of 30-Jun-14
School utilisation rate as of 30-Jun-14
(3)
(nos.) (nos.) (nos.) (nos.) (nos.) (%)
Dalian
High school 2,723 2,914 2,651(4) 2,479 3,500 70.8
Change (%)
7.0 (9.0) (6.5)
Middle school 1,211 1,248 1,308 1,182 1,300 90.9
Change (%)
3.1 4.8 (9.8)
Elementary school 840 884 899 928 850 109.2
Change (%)
5.2 1.7 3.2
Preschools (5) 1,613 1,702 1,704 1,582 1,800 79.6
Change (%)
5.5 0.1 (7.2)
Foreign national school 187 184 171 191 240 87.9
Change (%) (1.6) (7.1) 11.7
Total 6,574 6,932 6,733 6,362
Change (%)
5.4 (2.9) (5.5)
Wuhan
High school 1,106 1,246 1,332 1,392 1,500 92.8
Change (%)
12.7 6.9 4.5
Middle school 110 312 540 653 1,500 43.5
Change (%)
183.6 73.1 20.9
Elementary school - - - 501 400 125.3
Change (%)
- - -
Foreign national school 28 26 25 30 100 30.0
Change (%) (7.1) (3.8) 20.0
Total 1,244 1,584 1,897 2,576
Change (%)
27.3 19.8 35.8
Tianjin
High school 519 683 839 1,087 1,500 72.5
Change (%)
31.6 22.8 29.6
Middle school 278 401 512 602 750 80.3
Change (%)
44.2 27.7 17.6
Elementary school 350 508 684 844 750 112.5
Change (%) 45.1 34.6 23.4
Total 1,147 1,592 2,035 2,533
Change (%)
38.8 27.8 24.5
Chongqing
High school 155 331 349 434 1,000 43.4
Change (%)
113.5 5.4 24.4
Middle school - - 116 211 500 42.2
Change (%) - - 81.9
Total 155 331 465 645
Change (%)
113.5 40.5 38.7
(Continued on next page)
China Maple Leaf Educational 1317 HK Emily Lee
12 BNP PARIBAS 16 JANUARY 2015
EXHIBIT 10: Maple Leaf student enrolments, capacity and utilisation rate of each school (cont’d)
Student enrolment (1) 30-Jun-11 30-Jun-12 30-Jun-13 30-Jun-14
Student capacity as of 30-Jun-14
School utilisation rate as of 30-Jun-14
(3)
(nos.) (nos.) (nos.) (nos.) (nos.) (%)
Zhenjiang
High school - 70 163 256 400 64.0
Change (%)
- 132.9 57.1
Middle school - - - 101 200 50.5
Change (%)
- - -
Elementary school - - - 94 200 47.0
Change (%) - - -
Total - 70 163 451
Change (%)
- 132.9 176.7
Luoyang
High school - - - 30 550 5.5
Change (%)
- - -
Middle school - - 104 145 1,150 12.6
Change (%)
- - 39.4
Elementary school - - 100 243 1,000 24.3
Change (%) - - 143.0
Total - - 204 418
Change (%) 104.9
Shanghai
High school - - - 158 2,000 7.9
Ordos
Middle school - - 36 47 500 9.4
Change (%) 30.6
Elementary school - - 43 121 500 24.2
Change (%) 181.4
Preschools (5) - - 121 202 300 67.3
Change (%) 66.9
Total
200 370
Change (%) 85.0%
Total 9,120 10,509 11,697 13,513 22,490 60.1
Change (%)
15.2 11.3 15.5
1 Though its financial year ends on 31 August of each year, the company’s school year ends on 30 June each year.
2 Except for its preschool and foreign schools, all of its schools are boarding schools. For these boarding schools, the student capacity is based on the approximate number of beds in its dormitories. For its foreign schools, the student capacity is based on the approximate number of desks in its classrooms. For its preschools, the student capacity is based on the number of beds used for naps in the schools, according to Maple Leaf’s calculations.
3 As at 30 June 2014, the school utilisation rates of its elementary schools in Dalian, Wuhan and Tianjin exceeded 100%. This was due to the fact that some of its students in those schools were commuter students who did not live on-campus and thus did not occupy beds in the dormitories of those schools.
4 Student enrolments at Dalian Maple Leaf High School decreased significantly in the school year ended 30 June 2013 because it had a large number of high school graduates in the 2011-12 school year. This was primarily due to the fact that starting from the 2011-12 school year, it began to encourage its high school students to complete the BC curriculum in three years by offering summer courses to students in the foundations and bridging programmes.
5 The company had 10 preschools in Dalian and one in Ordos as at 30 June 2014. The student enrolment in each of its preschools is subject to monthly fluctuations.
Source: China Maple Leaf Educational Systems
Other educational services
Maple Leaf also provides summer and winter camps in partnership with foreign
universities and colleges that tailor programmes and activities to improve students’
English communication skills, graduation consulting centres that assist high school
students with their university and college applications and The Orca programme
which provides top students with personalised college counselling services to help
them obtain offers and financial aid from top universities.
China Maple Leaf Educational 1317 HK Emily Lee
13 BNP PARIBAS 16 JANUARY 2015
Ample room for growth
As discussed before, we believe there are four main growth drivers for Maple Leaf:
1) increases in tuition; 2) increases in student enrolments; 3) utilisation ramp-up at
existing schools; and 4) more new schools.
Student enrolment
Student enrolments generally depend on the school’s reputation, the quality of
teachers, the capacity of the schools and tuition they charge. The company believes
that its dual curriculum and bilingual form of education will enable it to steadily
increase the number of students enrolled as more students in China seek a pathway
to universities and colleges overseas. The company believes its relatively lower
tuition fee has also been a key factor parents have considered when deciding to
enrol children in Maple Leaf schools.
Tuition fee increase
Maple Leaf’s ability to raise tuition charges at its schools is one of the most
significant factors affecting its profitability. The company plans to raise tuition, subject
to applicable government approvals, in geographical regions where it has created a
strong presence and built sufficient student and parent loyalty.
EXHIBIT 11: Maple Leaf tuition
Tuition per student 2012/13 2013/14 2014/15
(RMB) (RMB) (RMB)
High schools 42,400-49,000 42,400-71,500 42,400-71,500
Middle schools 21,000-31,000 21,000-38,000 21,000-43,000
Elementary schools 18,000-28,000 18,000-33,000 18,000-33,000
Preschools 14,400-21,600 14,400-21,600 12,000-21,600
Foreign national schools USD13,000-15,600 USD13,000-15,600 USD13,000-15,600
Note: For its high schools, middle schools and elementary schools, tuition included a boarding fee ranging between RMB900 and RMB4,000 for the 2012-13 school year and RMB900 and RMB5,000 for the 2013-14 school year and RMB900 to RMB5,000 for the 2014-15 school year. Except for its foreign schools, the tuition ranges set forth in this table do not apply to foreign students. Source: China Maple Leaf Educational Systems
Utilisation rate
The utilisation rate of Maple Leaf’s school facilities is a key driver of revenue growth
and gross margin resulting from the large amount of fixed costs it incurs to operate a
school. Utilisation rates are generally higher at its more established facilities than at
the facilities in newly entered markets. With regards to the schools it currently
operates that have a low utilisation rate, it aims to concentrate on increasing student
enrolments and the utilisation rate and not to seek to expand capacity at these
schools in the short to medium term.
Expanding existing campuses and new schools
On some of its existing campuses it reserves undeveloped land on which it plans to
construct various types of facilities to increase the capacity of these campuses. For
its recently established campuses, the company usually divides the sites into two
areas and only completes construction on one area upon school opening. The
company will consider commencing construction on the other area after student
enrolments increase in these campuses.
The company aims to explore opportunities in new geographic locations and
gradually expand its operations to more cities in China and abroad. Once it enters a
new geographic market, it will first focus on establishing a high school, and gradually
build out one or more sets of middle and elementary schools to provide a pipeline of
students for its high school.
The company plans to carry out part of its future expansion under an asset-light
approach by partnering third parties, in particular local governments, to develop new
schools. In most of the company’s recent cooperation agreements, the third parties
China Maple Leaf Educational 1317 HK Emily Lee
14 BNP PARIBAS 16 JANUARY 2015
will contribute the land use rights to the campus sites and the school premises and,
in return, Maple Leaf will pay an administration fee or rent based on the school’s
disposable profit or on the number of students enrolled.
EXHIBIT 12: Information about its new campuses under development (as of 1 September 2014)
School Status Estimated school commencement date Estimated maximum capacity for students
(nos.)
Pinghu, Zhejiang Province
Middle school Under planning 1-Sep-16 800
Elementary school Under planning 1-Sep-16 900
Preschool Under planning 1-Sep-16 300
Yiwu, Zhejiang Province
High school and foreign national school Under planning 1-Sep-15 1,400-1,800
Middle school, elementary school and preschool Under planning 1-Sep-16 1,800
Xi'an, Shanxi Province
High school, middle school, elementary school and foreign national school
Under planning 1-Sep-16 – 1-Sep-17 3,500-4,000
Source: China Maple Leaf Educational Systems
In addition to expanding its existing campuses and developing new campuses, the
company also plan to make use of the vacant premises on some of its existing
campuses by opening new schools. The company opened a middle school on its
Shanghai campus and an elementary school on its Chongqing campus in September
2014, which the company believes will help to increase the utilisation rates of these
two campuses.
China Maple Leaf Educational 1317 HK Emily Lee
15 BNP PARIBAS 16 JANUARY 2015
Financial analysis
Revenue
Maple Leaf’s revenue increased 14.0% y-y in FY13 to RMB471.2m and 14.7% y-y in
FY14 to RMB540.3m. Tuition fees contributed 86.2% of the total turnover in FY13
and 86.4% in FY14. The increase was primarily the result of revenue from tuition
fees increasing by 10.6% y-y to RMB406.0m in FY13 and 15.0% y-y to RMB466.7m
in FY14, driven by an increase in student enrolments. Student enrolments increased
by 11.3% y-y to approximately 11,697 as at 30 June 2013 and by 15.5% y-y to
approximately 13,513 as at 30 June 2014.
As Maple Leaf’s tuition is relatively low compared with other peers, and its new
school locations are in more developed regions, we expect average tuition to
increase and revenue to outgrow student numbers in the next few years.
EXHIBIT 13: Revenue breakdown
Source: China Maple Leaf Educational Systems
EXHIBIT 14: Revenue breakdown (% of total)
Source: China Maple Leaf Educational Systems
Cost of revenue
Maple Leaf’s staff costs consist of salaries and benefits paid to its teachers and other
teaching staff. This component accounted for 58.5% of the total cost of revenue in
FY13 and 60.8% in FY14, increasing 17.0% in FY13 and 18.0% in FY14.
Depreciation and amortisation relate to the depreciation of property, plant and
equipment and the amortisation of books for lease. Other training expenses relate to
travel expenses and other expenses incurred in connection with its summer and
winter camps. Other costs include the daily expenses of operating its schools and
facilities.
0
100,000
200,000
300,000
400,000
500,000
600,000
FY11 FY12 FY13 FY14
(RMB'000)
High school tuition Middle school tuition
Elementary school tuition Foreign national school tuition
Preschool tuition Textbooks
Summer and winter camp Other educational services
0
20
40
60
80
100
FY11 FY12 FY13 FY14
(%)
High school tuition Middle school tuition
Elementary school tuition Foreign national school tuition
Preschool tuition Textbooks
Summer and winter camp Other educational services
China Maple Leaf Educational 1317 HK Emily Lee
16 BNP PARIBAS 16 JANUARY 2015
EXHIBIT 15: Cost of revenue breakdown
Year-end 31 Aug FY11 FY12 FY13 FY14
(RMB ’000) (RMB ’000) (RMB ’000) (RMB ’000)
Teaching staff costs 115,400 134,348 157,207 185,436
Depreciation & amortisation 25,479 26,154 29,577 34,509
Other training expenses 14,114 17,643 25,757 25,120
Other costs 34,694 44,197 56,210 60,083
Total cost of revenue 189,687 222,342 268,751 305,148
% of total cost of revenue
Teaching staff costs (%) 60.8 60.4 58.5 60.8
Depreciation & amortisation (%) 13.4 11.8 11.0 11.3
Other training expenses (%) 7.4 7.9 9.6 8.2
Other costs (%) 18.3 19.9 20.9 19.7
Source: China Maple Leaf Educational Systems
Gross margin
Maple Leaf’s gross margin decreased to 43.0% in FY13, from 46.2% in FY12,
primarily due to the opening of new schools in Luoyang and Ordos during the
period – the utilisation rate of new schools is typically lower during the initial years of
operation. Gross margin picked up by 0.5ppt to 43.5% in FY14, which we believe
was mainly due to the improved utilisation rate due to the ramp up of new schools.
A significant component of Maple Leaf’s cost of sales is compensation to its teachers,
including PRC-certified, BC-certified, ESL teachers and other teaching staff, which
accounted for 58.5% of total cost of sales in FY13 and 60.8% in FY14. A higher
utilisation rate of its facilities and a decrease in its teacher to student ratio, due to an
increase in student enrolments at its existing schools, will be positive to gross margin.
Another factor affecting gross margin would be the rate of increase in tuition vs
compensation to teachers. Since the majority of the new schools in the pipeline are
elementary and middle schools, we believe Maple Leaf would need to hire fewer
higher paid BC-certified teachers, which could help to control cost increases and
provide upside to gross margin.
EXHIBIT 16: Gross margin trend
Source: China Maple Leaf Educational Systems
45.2 46.2
43.0 43.5
30
35
40
45
50
FY11 FY12 FY13 FY14
(%)
China Maple Leaf Educational 1317 HK Emily Lee
17 BNP PARIBAS 16 JANUARY 2015
Operating expenses
Commercials and expenditure on producing, printing and distributing advertising and
promotional materials make up the majority of the marketing expenses.
Administrative expenses primarily consist of salaries and benefits for general and
administrative staff, depreciation of office buildings and equipment, travel expenses,
taxes, employee share options and certain professional expenses. The company
expects administrative expenses to increase as it intends to hire additional
administrative personnel to support growth.
Adjusted EBITDA
The table below shows the adjusted EBITDA trend excluding the effect from fair
value changes from convertible preferred shares and warrants, share-based
payments, depreciation and amortisation and interest income. Adjusted EBITDA
grew 14.8% to RMB163.8m in FY12, 2.1% to RMB167.3m in FY13 and 3.3% to
RMB172.8m in FY14. The slowdown in growth was primarily due to the opening of
new schools in Luoyang and Ordos during the period and the fact that the utilisation
rate of new schools is typically lower during the initial years of operation. As a large
proportion of Maple Leaf’s costs are fixed, we believe EBITDA margin will improve
due to operational leverage as Maple Leaf’s student enrolments rise.
EXHIBIT 17: Adjusted EBITDA
Year-end 31 Aug FY11 FY12 FY13 FY14
(RMB ’000) (RMB ’000) (RMB ’000) (RMB ’000)
PBT (30,655) 103,121 41,225 48,436
Interest expense 14,952 15,234 15,554 15,493
Depreciation and amortisation 32,062 33,137 38,332 44,027
EBITDA 16,359 151,492 95,111 107,956
Share based payments 353 72 31 8,560
Change in fair value on redeemable convertible preferred shares
104,040 10,440 63,720 91,812
Loss on modification of redeemable preferred shares - - - 3,286
Change in fair value on warrants 21,960 1,785 8,410 3,695
Gain on cancellation of warrants - - - (42,510)
Adjusted EBITDA 142,712 163,789 167,272 172,799
Source: China Maple Leaf Educational Systems
Taxation
Maple Leaf’s China operations are generally subject to China’s enterprise income tax
rate of 25% on its taxable income. According to the Implementation Rules for the
Law for Promoting Private Education, private schools for which the sponsors do not
require reasonable returns are eligible to enjoy the same preferential tax treatment
as public schools. Maple Leaf’s adjusted effective tax rate, excluding the impact of
fair value changes on preferred shares and warrants, has been stable at 7-8%.
Cash flow
Cash flow from operating activities is generated primarily from tuition fees, summer
and winter camp fees and graduation consulting service fees, all of which are
typically paid before the respective services are rendered and are booked under
deferred revenue. It will be recognised as revenue proportionately over the relevant
period in which students attend the applicable programme. The company typically
has cash outflows for operating activities throughout the school year.
China Maple Leaf Educational 1317 HK Emily Lee
18 BNP PARIBAS 16 JANUARY 2015
EXHIBIT 18: Net cash generated from operating activities
Sources: China Maple Leaf Educational Systems; BNP Paribas estimates
Dividend policy
The company has never declared or paid any dividends on its ordinary shares. It has
no plan at present to declare and pay any dividends on its shares, as it intends to
retain the available funds and any future earnings to operate and expand its
business.
0
50
100
150
200
250
300
350
400
450
FY11 FY12 FY13 FY14E FY15E FY16E FY17E
(RMB m)
China Maple Leaf Educational 1317 HK Emily Lee
19 BNP PARIBAS 16 JANUARY 2015
Valuation
We initiate coverage on China Maple Leaf with a BUY recommendation. Our target
price of HKD2.91 is based on 20x CY15E P/E, implying a 1.1x PEG based on our
projected net profit CAGR of 18.3% in FY15-17E. The target multiple of 20x is largely
in line with the average consensus valuation of 18.5x for its closest peers, including
international school operators and educational service providers, and is also in line
with Nord Anglia’s PEG of 1.2x. We believe the slight valuation premium attached is
reasonable, given China Maple Leaf’s strong cash flow, steady earnings stream as
well as the rising demand of quality education by the Chinese middle income group,
leading to a visible turnover and earnings outlook.
Our target multiple assigned for Maple Leaf is slightly higher than the average of
16.3x CY15 consensus P/E for other peers providing educational services. We
believe the premium attached to Maple Leaf is reasonable given its high earnings
visibility, stable operating cash flow, as well as its revenue and earnings growth
potential.
Most of Maple Leaf’s peers are involved in education services and focus on tutoring
services. We believe Nord Anglia Education is the most relevant listed peer in terms
of business operations because they are both international school operators with the
ability to offer an internationally recognised diploma for their graduates.
EXHIBIT 19: Peer valuations
Company name BBG code Curr. Price Mkt cap ------ CY P/E ------ -----EV/EBITDA ----- -------- P/BV -------- -------- ROE -------- ------ Div. yield ------
'14E '15E '16E '14E '15E '16E '14E '15E '16E '14E '15E '16E '14E '15E '16E
(LC) (LC) (USD m) (x) (x) (x) (x) (x) (x) (x) (x) (x) (%) (%) (%) (%) (%) (%)
International school operator
China Maple Leaf Educational 1317 HK HKD 2.12 363 23.6 14.6 12.4 6.9 5.1 4.5 2.8 1.7 1.5 29.2 16.4 12.3 0.0 0.0 0.0
Nord Anglia Education Inc. NORD US USD 20.05 1,960 54.0 29.1 23.3 35.3 17.4 14.5 n.a. 7.8 5.8 n.a. 23.3 24.1 n.a. n.a. n.a.
Educational service provider
New Oriental Educatio-SP ADR EDU US USD 20.57 3,258 14.4 12.6 10.9 n.a. 10.3 8.3 4.0 2.6 2.1 22.9 20.4 19.8 0.0 0.0 0.0
TAL Education Group- ADR XRS US USD 27.97 2,206 32.5 25.3 17.9 n.a. 20.7 14.7 7.2 6.7 5.1 26.8 25.9 27.6 0.0 0.4 0.5
Xueda Education GR-Spon ADR XUE US USD 2.44 163 15.3 9.8 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Tarena International Inc.-ADR TEDU US USD 11.91 603 25.6 16.5 n.a. 38.0 23.3 13.7 2.8 2.5 2.0 13.1 16.4 18.8 n.a. n.a. n.a.
China Distance Education-ADR DL US USD 15.32 547 21.65 17.46 13.86 23.6 12.2 9.4 5.1 5.7 5.6 28.7 27.6 35.1 0.0 5.6 6.7
Simple average for educational service providers 21.9 16.3 14.2 30.8 16.6 11.5 4.8 4.4 3.7 22.9 22.6 25.3
Simple average for all peers
27.2 18.5 16.5 26.4 15.0 11.0 4.4 4.5 3.7 24.1 21.7 23.0
Note: Calendarised P/E for all companies. Prices as at 15-Jan-2015; Bloomberg consensus estimates for all companies except China Maple Leaf Educational Systems Sources: Companies; Bloomberg consensus; BNP Paribas estimates
While we believe Nord Anglia is the closest listed peer to Maple Leaf, their key
differences include 1) market presence, 2) market positioning and target market and
3) student composition. Nord Anglia Education has 31 international schools, located
in 13 countries (China, Europe, the Middle East, North America and Southeast Asia),
and educates over 20,000 students from preschool through to the end of secondary
education. Nord Anglia posted an adjusted EBITDA of USD128.2m in FY14 and the
company expects to record revenue of USD545m-555m and adjusted EBITDA of
USD144m-147m in FY15.
Based on Nord Anglia’s FY14 report, its China business contributed 52.1% to its
adjusted EBITDA in FY14, amounting to USD78.4m (RMB482.9m), which is 1.8x
higher than Maple Leaf’s RMB172.8m. While the number of students enrolled at
Nord Anglia China is substantially lower than Maple Leaf at 4,827 students, its
revenue per full-time equivalent students is much higher at USD34,300, due to its
premium positioning with a much higher tuition level and substantially larger number
of expatriates. In China, Nord Anglia’s total revenue in FY14 was USD165.6m and
adjusted EBITDA USD78.4m.
China Maple Leaf Educational 1317 HK Emily Lee
20 BNP PARIBAS 16 JANUARY 2015
Based on market consensus estimates, Nord Anglia is trading at 29.1x CY15 P/E.
Our target multiple of 20x for Maple Leaf represents a 31% discount to Nord Anglia’s
CY15 P/E, which we believe is justified by Maple Leaf’s smaller business scale,
lower profitability and concentration in China, although we expect more room for
Maple Leaf to grow as it targets the country’s rising middle class with more affordable
tuition fees.
EXHIBIT 20: Nord Anglia's income statement
FY11 FY12 FY13 FY14
(USD m) (USD m) (USD m) (USD m)
Revenue 225.2 274.4 323.7 474.6
COGS (105.0) (126.5) (147.6) (214.4)
Gross profit 120.2 147.9 176.1 260.2
Selling and administrative expenses (78.1) (84.6) (96.0) (137.4)
Depreciation (7.2) (9.9) (11.7) (23.4)
Amortization (2.8) (3.5) (5.7) (10.4)
Impairment of goodwill (16.7) (10.7) - -
Exceptional items (9.4) (12.5) (17.7) (100.2)
Operating profit 6.0 26.7 45.0 (11.2)
Finance income 10.1 2.0 2.3 2.0
Finance expense (51.7) (49.7) (51.3) (55.5)
PBT (35.6) (21.0) (4.0) (64.7)
Tax (12.5) (16.4) (19.3) (25.7)
Net profit (48.1) (37.4) (23.3) (90.4)
Adjusted EBITDA
PBT (35.6) (21.0) (4.0) (64.7)
Interest expense 41.6 47.7 49.0 53.5
Exceptional items 9.4 12.5 17.7 100.2
Impairment of goodwill 16.7 10.7 - -
Depreciation and Amortization 10.0 13.4 17.4 33.8
EBITDA 42.1 63.3 80.1 122.8
Share based payments 0.3 0.6 0.1 3.1
Adjusted EBITDA 42.4 63.9 80.2 125.9
Adjusted net profit (14.0) (4.4) (1.3) 23.6
Ratios (%)
GP margin 53.4 53.9 54.4 54.8
OP margin 2.7 9.7 13.9 (2.4)
EBITDA margin 18.8 23.3 24.8 26.5
PBT margin (15.8) (7.7) (1.2) (13.6)
Net margin (21.4) (13.6) (7.2) (19.0)
Adjusted net margin (6.2) (1.6) (0.4) 5.0
Source: Nord Anglia prospectus, annual report
China Maple Leaf Educational 1317 HK Emily Lee
21 BNP PARIBAS 16 JANUARY 2015
EXHIBIT 21: Nord Anglia’s FY14 revenue split
Source: Nord Anglia
EXHIBIT 22: Nord Anglia’s FY14 adjusted EBITDA split
Source: Nord Anglia
EXHIBIT 23: Nord Anglia's China regional snapshot
FY14
Number of schools (nos) 5
Full-time equivalent students (average for the period) 4,827
Capacity (no of students) 6,964
Utilisation (%) 69
Annual revenue/FTE (USD) 34,300
Source: Nord Anglia
China36.5%
Europe30.0%
Middle East/South East
Asia19.0%
North America14.5%
China52.1%
Europe17.3%
Middle East/South East
Asia14.7%
North America15.9%
China Maple Leaf Educational 1317 HK Emily Lee
22 BNP PARIBAS 16 JANUARY 2015
Forecast and assumptions
Profit & loss analysis
We forecast revenue growth of 17.2% for FY15, 15.0% in FY16 and 15.1% for FY17,
or a CAGR of 15.0% in FY15-17, for Maple Leaf. We expect this to be driven by an
increase in total student enrolments of 14.1% in FY15, 11.2% in FY16 and 12.5% in
FY17, and an increase in average tuition fee of 3.6%, 3.8% and 2.9%, respectively.
We have also factored in the new schools that commenced operations on 1
September 2014 in Tianjian and Pingdingshan, the schools that plan to commence
operations in Yiwu, Zhejiang, on 1 September 2015, and the new schools that plan to
commence operations in Pinghu, Zhejiang, on 1 September 2016; we expect them to
contribute 3.1% of tuition fees in FY15, 4.9% in FY16 and 7.7% in FY17. We expect
the utilisation rate to increase to 61.7% on 30 June 2017, from 60.1% on 30 June
2014, as the new schools ramp up due to increased student enrolments.
Gross margin increased to 43.5% in FY14, from 43.0% in FY13, as we believe the
new schools opened in Luoyang and Ordos in FY13 ramped up student enrolments,
lifting utilisation rates. We expect gross margin to gradually improve to 44.8% in
FY17 as the utilisation rates of the new schools improve.
EXHIBIT 24: Income statement
Year ended 31 Aug FY11 FY12 FY13 FY14 FY15E FY16E FY17E
(RMB ’000) (RMB ’000) (RMB ’000) (RMB ’000) (RMB ’000) (RMB ’000) (RMB ’000)
Revenue 346,091 413,459 471,219 540,269 633,412 728,372 838,260
Cost of revenue (189,687) (222,342) (268,751) (305,148) (352,811) (403,518) (462,719)
Gross profit 156,404 191,117 202,468 235,121 280,602 324,854 375,540
Investment and other income 1,588 4,872 4,859 5,702 5,759 5,817 5,875
Other income, gains and losses 6,701 (1,633) 101 (246) (258) (271) (285)
Marketing expenses (13,861) (14,409) (20,886) (21,709) (24,070) (27,678) (31,854)
Administrative expenses (34,256) (47,934) (56,118) (74,528) (85,511) (100,515) (114,842)
Finance costs (14,952) (15,234) (15,554) (15,493) (13,088) (11,237) (7,827)
Other expenses (6,279) (1,433) (1,515) (24,128) (6,318) (6,381) (6,445)
Operating profit 95,345 115,346 113,355 104,719 157,116 184,588 220,163
Changes in fair value on redeemable convertible preferred shares (104,040) (10,440) (63,720) (91,812) - - -
Loss on modification of redeemable convertible preferred shares - - - (3,286) - - -
Change in fair value on warrants (21,960) (1,785) (8,410) (3,695) - - -
Gain on cancellation of warrants - - - 42,510 - - -
PBT (30,655) 103,121 41,225 48,436 157,116 184,588 220,163
Tax (7,575) (9,153) (8,043) (8,400) (12,569) (15,136) (18,053)
Net profit (38,230) 93,968 33,182 40,036 144,547 169,452 202,110
Adjusted net profit 88,123 106,265 105,343 129,007 144,547 169,452 202,110
Ratios (%)
GP margin 45.2 46.2 43.0 43.5 44.3 44.6 44.8
OP margin 27.5 27.9 24.1 19.4 24.8 25.3 26.3
Adjusted EBITDA margin 41.2 39.6 35.5 32.0 33.0 33.1 33.4
PBT margin (8.9) 24.9 8.7 9.0 24.8 25.3 26.3
Net margin (11.0) 22.7 7.0 7.4 22.8 23.3 24.1
Adjusted net margin 25.5 25.7 22.4 23.9 22.8 23.3 24.1
Effective tax rate 24.7 (8.9) (19.5) (17.3) (8.0) (8.2) (8.2)
Adjusted effective tax rate (7.9) (7.9) (7.1) (8.3) (8.0) (8.2) (8.2)
Growth (y-y %)
Turnover 19.5 14.0 14.7 17.2 15.0 15.1
Operating profit
21.0 (1.7) (7.6) 50.0 17.5 19.3
Adjusted EBITDA
14.8 2.1 3.3 20.9 15.4 16.2
PBT
n.a. (60.0) 17.5 224.4 17.5 19.3
Net profit
n.a. (64.7) 20.7 261.0 17.2 19.3
Adjusted net profit
20.6 (0.9) 22.5 12.0 17.2 19.3
Marketing expenses growth
4.0 45.0 3.9 10.9 15.0 15.1
Administrative expenses growth
39.9 17.1 32.8 14.7 17.5 14.3
Sources: China Maple Leaf Educational Systems (FY11-14); BNP Paribas estimates (FY15-17E)
China Maple Leaf Educational 1317 HK Emily Lee
23 BNP PARIBAS 16 JANUARY 2015
Adjusted net margin (excluding the impact of fair value changes on redeemable
convertible preferred shares, warrants and share-based payments and one-off
professional fee) came in at 23.9% in FY14, compared to 22.4% in FY13 and 25.7%
in FY12. It bottomed in FY13 due to the impact of low utilisation rates at the new
schools. We expect adjusted net margin to improve to 24.1% in FY17, with utilisation
rates improving due to the ramp up at new schools.
We forecast adjusted earnings (excluding the effect of fair value changes on
preferred shares, which we have not included in our forecasts after FY14, and one-
off professional fees) to grow by 12.0% to RMB144.5m in FY15, by 17.2% to
RMB169.5m in FY16 and by 19.3% to RMB202.1m in FY17, implying an 18.3%
CAGR for FY15-17.
EXHIBIT 25: Adjusted EBITDA and net profit
Year ended 31 Aug FY11 FY12 FY13 FY14 FY15E FY16E FY17E
(RMB ’000) (RMB ’000) (RMB ’000) (RMB ’000) (RMB ’000) (RMB ’000) (RMB ’000)
PBT (30,655) 103,121 41,225 48,436 157,116 184,588 220,163
Interest expense 14,952 15,234 15,554 15,493 13,088 11,237 7,827
Depreciation and Amortisation 32,062 33,137 38,332 44,027 38,638 45,159 51,972
EBITDA 16,359 151,492 95,111 107,956 208,842 240,984 279,962
Share based payments 353 72 31 8,560 - - -
Change in fair value on redeemable convertible preferred shares 104,040 10,440 63,720 91,812 - - -
Loss on modification of redeemable preferred shares - - - 3,286 - - -
Change in fair value on warrants 21,960 1,785 8,410 3,695 - - -
Gain on cancellation of warrants - - - (42,510) - - -
Adjusted EBITDA 142,712 163,789 167,272 172,799 208,842 240,984 279,962
(Loss) profit for the year/period (38,230) 93,968 33,182 40,036 144,547 169,452 202,110
Share-based payments 353 72 31 8,560 - - -
Change in fair value on redeemable convertible preferred shares 104,040 10,440 63,720 91,812 - - -
Loss on modification of redeemable preferred shares - - - 3,286 - - -
Change in fair value on warrants 21,960 1,785 8,410 3,695 - - -
Gain on cancellation of warrants - - - (42,510) - - -
One off professional fee - - - 24,128 - - -
Adjusted net profit 88,123 106,265 105,343 129,007 144,547 169,452 202,110
Sources: China Maple Leaf Educational Systems (FY11-14); BNP Paribas estimates (FY15-17E)
China Maple Leaf Educational 1317 HK Emily Lee
24 BNP PARIBAS 16 JANUARY 2015
EXHIBIT 26: Tuition fee and student enrolment forecasts
Year-end 31 Aug 2011 2012 2013 2014 2015E 2016E 2017E
Total tuition fee (RMB '000)
High schools 196,472 241,051 259,205 288,041 332,682 382,875 428,009
Middle schools 41,683 54,801 68,150 79,259 99,178 116,584 146,590
Elementary schools 25,612 31,349 37,851 59,779 76,869 87,575 105,752
Foreign national schools 18,207 16,377 14,376 14,877 16,045 21,404 25,073
Preschools 22,754 23,481 26,380 24,792 26,861 28,772 32,223
Total 304,728 367,059 405,962 466,748 551,636 637,210 737,648
Change (y-y %)
20.5 10.6 15.0 18.2 15.5 15.8
Tuition per student (RMB)
High schools 43,631 45,967 48,595 49,356 51,824 53,378 55,514
Middle schools 26,068 27,945 26,051 26,950 28,297 29,146 30,603
Elementary schools 21,523 22,521 21,930 21,889 22,765 23,675 24,622
Foreign national schools (RMB/USD 6.16) 84,684 77,986 73,347 67,317 70,683 72,803 76,443
Preschools 14,107 13,796 14,455 13,919 14,175 14,458 14,747
Average Tuition 33,413 34,928 34,707 34,544 35,767 37,142 38,204
Tuition per student (y-y %)
High schools
5.4 5.7 1.6 5.0 3.0 4.0
Middle schools
7.2 (6.8) 3.4 5.0 3.0 5.0
Elementary schools
4.6 (2.6) -0.2 4.0 4.0 4.0
Preschools
(7.9) (5.9) -8.2 5.0 3.0 5.0
Foreign national schools
(2.2) 4.8 -3.7 2.0 2.0 2.0
Average tuition
4.5 (0.6) -0.5 3.6 3.8 2.9
Enrolment (as of 30 June)
High schools 4,503 5,244 5,334 5,836 6,420 7,173 7,710
Middle schools 1,599 1,961 2,616 2,941 3,505 4,000 4,790
Elementary schools 1,190 1,392 1,726 2,731 3,377 3,699 4,295
Foreign national schools 215 210 196 221 227 294 328
Preschools 1,613 1,702 1,825 1,784 1,895 1,990 2,185
Total enrolment 9,120 10,509 11,697 13,513 15,423 17,156 19,308
Enrolment (y-y %)
High schools
16.5 1.7 9.4 10.0 11.7 7.5
Middle schools
22.6 33.4 12.4 19.2 14.1 19.8
Elementary schools
17.0 24.0 58.2 23.6 9.5 16.1
Foreign national schools
(2.3) (6.7) 12.8 2.7 29.5 11.6
Preschools
5.5 7.2 (2.2) 6.2 5.0 9.8
Total enrolment
15.2 11.3 15.5 14.1 11.2 12.5
* Tuition per student in 2011, 2012 and 2013 are BNP Paribas estimates based on the range of tuition fees given by Maple Leaf Sources: China Maple Leaf Educational Systems (FY11-14 enrolment); BNP Paribas estimates (FY15-17E)
Balance sheet analysis
Maple Leaf was in a net debt position (bank balances and cash minus bank
borrowings, redeemable convertible preferred shares and warrants) of RMB319.7m
in FY14. We expect it to be in a net cash position in FY15-17 as it increasingly
cooperates with third parties to build new schools, which will lower its capital
requirements.
The company had net current liabilities of RMB704.6m in FY12, RMB837.6m in FY13
and RMB391.7m in FY14. This was primarily due to amounts recognised as deferred
revenue, amounts recognised as other payables and bank borrowings and amounts
China Maple Leaf Educational 1317 HK Emily Lee
25 BNP PARIBAS 16 JANUARY 2015
recognised as redeemable convertible preferred shares. Maple Leaf recognises
deferred revenue from tuition fees, textbook fees, among other things, received
before the start of the relevant semester. Tuition fees and textbook rental income
from all its schools, except preschools, are generally paid in advance at the
beginning of each school year and are initially recorded as deferred revenue. The
company records payment of tuition fees initially as a liability under deferred revenue
and recognises such amounts received as revenue proportionately over the relevant
period in which students attend the applicable programme. It recognises textbook
rental income as a liability until the end of the relevant school year. The deferred
revenue is typically less as of 31 May as a certain amount of tuition services have
already been rendered.
EXHIBIT 27: Balance sheet
As at 31 Aug FY11 FY12 FY13 FY14 FY15E FY16E FY17E
(RMB ’000) (RMB ’000) (RMB ’000) (RMB ’000) (RMB ’000) (RMB ’000) (RMB ’000)
Non-current assets
PPE 882,953 961,387 1,177,025 1,218,897 1,401,324 1,582,225 1,769,257
Prepaid lease payments 162,733 167,546 196,589 191,715 202,664 215,598 221,934
Prepayment for purchase of property plant and equipment 2,118 2,118 2,118 2,118
Investment properties 20,412 19,558 18,704 17,850 16,996 16,142 15,288
Goodwill 3,980 1,982 1,982 1,982 1,982 1,982 1,982
Available for sale investments 4,418 3,177 3,493 - - - -
Books for lease 2,565 4,028 3,309 3,407 4,429 5,536 6,644
Deposits for construction of property and land use right 3,037 3,193 1,227 1,037 1,037 1,037 1,037
1,080,098 1,160,871 1,402,329 1,437,006 1,630,549 1,824,636 2,018,259
Current assets
Deposit, prepayments and other receivables 13,283 12,483 16,256 24,626 28,163 33,201 38,838
Available-for-sale investments - - - 161,741 161,741 161,741 161,741
Restricted bank deposits - - - 4,000 - - -
Bank balances and cash 234,903 297,036 409,303 380,332 1,138,472 1,228,524 1,332,591
248,186 309,519 425,559 570,699 1,328,376 1,423,466 1,533,170
Current liabilities
Deferred revenue 319,847 357,475 408,325 500,231 591,209 682,922 790,565
Other payables and accrued expenses 87,087 109,842 188,607 218,148 254,730 299,237 346,599
Amounts due to related parties 13,822 13,805 13,491 3,544 3,544 3,544 3,544
Income tax payable 10,205 14,873 17,541 16,959 18,655 20,520 22,572
Bank borrowings 233,500 170,000 215,000 223,500 199,833 168,244 98,384
Redeemable convertible preferred shares 307,260 317,700 381,420 - - - -
Warrants 28,620 30,405 38,815 - - - -
1,000,341 1,014,100 1,263,199 962,382 1,067,970 1,174,467 1,261,664
Net current liabilities (752,155) (704,581) (837,640) (391,683) 260,405 249,000 271,506
Total assets less current liabilities 327,943 456,290 564,689 1,045,323 1,890,955 2,073,635 2,289,765
Non-current liabilities
Deferred tax liabilities 4,572 9,057 14,347 19,171 20,130 21,136 22,193
Bank borrowings - - 60,000 - - - -
Redeemable convertible preferred shares - - - 476,518 476,518 476,518 476,518
Deposit received in respect of disposal of properties 30,000 60,000 70,000 80,000 96,667 108,889 121,852
Other non-current liabilities 3,300 3,000 2,700 2,400 2,400 2,400 2,400
37,872 72,057 147,047 578,089 595,714 608,943 622,963
Capital and reserves
Share capital 511 511 511 511 732 732 732
Reserves 289,560 383,722 417,131 466,723 1,294,508 1,463,960 1,666,070
290,071 384,233 417,642 467,234 1,295,241 1,464,692 1,66,803
Sources: China Maple Leaf Educational Systems (FY11-14); BNP Paribas estimates (FY15-17E)
China Maple Leaf Educational 1317 HK Emily Lee
26 BNP PARIBAS 16 JANUARY 2015
Cash flow analysis
Maple Leaf generated stable operating cash flows in the past three years, primarily
from tuition fees, fees for summer and winter camps and graduation consulting
service fees, all of which are typically paid before the respective services are
rendered.
Net cash is used in investing activities, primarily attributable to purchases of property,
plant and equipment for the construction of additional school premises. Hence,
capex totalled 42.5% of revenue in FY13 and 20.5% in FY14. We expect this ratio to
remain relatively high at 35.1% in FY15, 31.2% in FY16 and 27.9% in FY17 as the
company will be building some of the new schools in Yiwu under the asset-heavy
model. But we expect the capex to sales ratio to decline over the years as it
increasingly cooperates with third parties to lower its capex.
As for financing cash flow, major components are interest expenses and finance
costs. We expect the need to raise additional debt will be limited as the company’s
increasing cooperation with third parties reduces its funding needs.
EXHIBIT 28: Cash flow statement
Year-end 31 Aug FY11 FY12 FY13 FY14 FY15E FY16E FY17E
(RMB ’000) (RMB ’000) (RMB ’000) (RMB ’000) (RMB ’000) (RMB ’000) (RMB ’000)
PBT (30,655) 103,121 41,225 48,436 157,116 184,588 220,163
Finance costs 14,952 15,234 15,554 15,493 13,088 11,237 7,827
Interest income (379) (1,059) (960) (1,354) (3,758) (4,001) (4,001)
Exchange gain (730) 3 (185) 202 - - -
Depreciation of PPE 25,241 25,966 29,873 35,424 39,663 46,356 45,356
Depreciation of investment properties 854 854 854 854 854 854 854
Amortisation of books for lease 1,934 2,276 3,132 2,875 3,219 3,762 3,762
Release of prepaid lease payment 4,033 4,041 4,473 4,874 4,463 4,603 4,647
Gain on disposal of available-for-sale investments (689) (186) - - - - -
Impairment loss on available-for-sale investments 555 - - - - - -
Dividends from available for sales investments (184) (183) (144) (146) (158) (149) (151)
Loss on disposal of PPE 345 (53) (286) 22 - - -
Share based payments 353 72 31 8,560 - - -
Change in fair value on redeemable convertible preferred shares 104,040 10,440 63,720 91,812 - - -
Change in fair value on warrants 21,960 1,785 8,410 3,695 - - -
Gain on cancellation of warrants - - - (39,224) - - -
Impairment loss on goodwill - 1,998 - - - - -
Operating cash flow before working cap 141,630 164,309 165,697 171,523 214,487 247,250 279,457
Decrease in deposits prepayment and other receivables 3,138 980 (3,089) (8,370) (3,493) (4,984) (5,616)
Increase in deferred revenue 74,656 37,628 50,850 91,906 90,978 91,713 107,643
Increase in other payables and accrued expenses 15,864 12,806 35,941 60,998 36,582 44,507 47,362
Cash from operations 235,288 215,723 249,399 316,057 338,553 378,486 428,847
Interest received 379 1,059 960 1,354 3,758 4,001 4,001
Income tax paid - - (85) (4,158) (9,915) (12,264) (14,945)
Net cash from operating activities 235,667 216,782 250,274 313,253 332,396 370,223 417,904
(continued on next page)
China Maple Leaf Educational 1317 HK Emily Lee
27 BNP PARIBAS 16 JANUARY 2015
EXHIBIT 28: Cash flow statement (cont’d)
Year-end 31 Aug FY11 FY12 FY13 FY14 FY15E FY16E FY17E
(RMB ’000) (RMB ’000) (RMB ’000) (RMB ’000) (RMB ’000) (RMB ’000) (RMB ’000)
Payments for PPE (130,066) (93,306) (200,135) (110,765) (222,313) (204,993) (202,213)
Prepaid lease payments paid (4,498) (9,034) (37,200) - (15,411) (15,371) (8,095)
Purchase of books for lease (2,182) (3,739) (2,413) (2,973) (4,241) (5,889) (5,889)
Dividends received from available-for-sale investments 184 183 144 146 158 154 159
Proceeds from disposal of PPE 239 150 437 85 224 365 329
Proceeds from disposal of available for sale investments 2,200 1,490 - 4,000 - - -
Deposit received in respect of disposal of properties 10,000 30,000 10,000 10,000 16,667 12,222 12,963
Refund of deposits for construction of property and land use right - - 1,966 190 - - -
Purchase of AFS investments
(158,000)
Payment for acquisition of Tianjian Taida Maple in 2008 (30,375) - - - - - -
Net cash used in investing activities (154,498) (74,256) (227,201) (265,317) (224,917) (213,512) (202,746)
Proceeds from bank borrowings 218,500 170,000 275,000 165,000 183,000 166,133 137,102
Repayment of bank borrowings (180,000) (233,500) (170,000) (216,500) (206,667) (197,722) (206,963)
Capital issues - - - - 687,460 - -
Interest paid (14,177) (16,879) (15,654) (15,441) (13,088) (11,237) (7,827)
Repayment to related parties (537)
(10000 - - -
Net cash from financing activities 23,786 (80,379) 89,346 (76,941) 650,705 (42,826) (77,687)
Increase in cash and cash equivalents 104,955 62,147 112,419 (29,005) 758,184 90,107 104,088
Cash and cash equivalents at beginning of the year 130,038 234,903 297,036 409,303 380,332 1,138,472 1,228,524
Effect of foreign exchange rate changes (90) (14) (152) 34 (44) (54) (21)
Cash and cash equivalents at the end of the year 234,903 297,036 409,303 380,332 1,138,472 1,228,524 1,332,591
Sources: China Maple Leaf Educational Systems (FY11-14); BNP Paribas estimates (FY15E-17E)
China Maple Leaf Educational 1317 HK
28
Industry analysis
Overview of the PRC education industry
Fundamental education in China includes three years of preschool, nine years of
compulsory education at elementary and middle school and three years of high
school, which is a prerequisite for admission to college and postgraduate studies.
Compulsory education is closely regulated by the
including the curriculum and tuition, while preschools and high schools operate with
a greater degree of flexibility. While most high schools in China offer their graduates
a Chinese high school diploma, a small number offer international diplomas such as
the International Baccalaureate (IB) diploma and Canadian, British and American
diplomas. Very few high schools provide their graduates the opportunity to obtain a
dual diploma and accreditation under the Chinese and international school systems.
EXHIBIT 29: Composition of China’s education system
Source: Frost & Sullivan Report
Market size and trends of China’s fundamental education industry
China’s fundamental education industry generated total revenues of about
RMB1,810.3b in 2013, a CAGR of about 18.4% from 2009. Government public
expenditure accounted for about 86.8% of total revenues generated by the country’s
fundamental education industry in 2013. Others would include funding provided to
private schools by investors, donations, fundraising and tuition, etc.
EXHIBIT 30: Total revenues generated by China’s fundamental education industry in 2009-13
Source: Frost & Sullivan Report
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2009 2010 2011
(RMB b)
2009-13 CAGR: 18.4%
BNP PARIBAS
Fundamental education in China includes three years of preschool, nine years of
compulsory education at elementary and middle school and three years of high
school, which is a prerequisite for admission to college and postgraduate studies.
tion is closely regulated by the Ministry of Education (MOE),
including the curriculum and tuition, while preschools and high schools operate with
a greater degree of flexibility. While most high schools in China offer their graduates
diploma, a small number offer international diplomas such as
the International Baccalaureate (IB) diploma and Canadian, British and American
diplomas. Very few high schools provide their graduates the opportunity to obtain a
under the Chinese and international school systems.
Composition of China’s education system
Market size and trends of China’s fundamental education industry
China’s fundamental education industry generated total revenues of about
RMB1,810.3b in 2013, a CAGR of about 18.4% from 2009. Government public
expenditure accounted for about 86.8% of total revenues generated by the country’s
ry in 2013. Others would include funding provided to
private schools by investors, donations, fundraising and tuition, etc.
Total revenues generated by China’s fundamental education
2011 2012 2013
13 CAGR: 18.4%
Emily Lee
16 JANUARY 2015
China Maple Leaf Educational 1317 HK Emily Lee
29 BNP PARIBAS 16 JANUARY 2015
According to the National Bureau of Statistics of China, the decrease in China’s birth
rate from about 1.8% in 1980 to about 1.2% in 2013, due to the one-child policy,
resulted in a decrease in the school-age population. The increase in total revenues
generated by the fundamental education industry over this period was primarily
driven by increasing per capita expenditure on fundamental education. According to
the Frost & Sullivan Report, per capita expenditure per annum on fundamental
education grew at about 17.8% CAGR from 2009-13 to about RMB1,330.4.
EXHIBIT 31: Per capita expenditure on fundamental education, 2009-13
Source: Frost & Sullivan Report
Student enrolment in China’s fundamental education industry
According to the Frost & Sullivan Report, the number of students enrolled in
fundamental education in China reached about 201.3m in 2013, about a 2.3% drop
y-y.
EXHIBIT 32: Total student enrolment in fundamental education 2009-17E
Note: The data in the above diagram is based on statistics as at 31 August of each year Sources: National Bureau of Statistics of China; Frost & Sullivan Report
§ The preschool segment grew at about 10.0% CAGR from 2009-13 to about
38.9m students. This was primarily driven by the increase in the enrolment rate,
given the increasing awareness among parents of the value that a quality
preschool education can help students perform well in elementary school and
beyond.
§ The elementary school segment saw a decline of about 1.8% CAGR in 2009-13
to about 93.6m due to the overall decline in school-age population.
§ The middle school segment experienced a decline of about 4.9% CAGR in 2009-
13 to about 44.4m due to the overall decline in school-age population.
§ The high school segment’s student enrolments remained stable in 2009-13 at
about 24.4m.
0
200
400
600
800
1,000
1,200
1,400
2009 2010 2011 2012 2013
(RMB b)
2009-13 CAGR: 17.8%
0
50
100
150
200
250
2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E
(m persons) Preschool Elemetary Schools Middle Schools High Schools
China Maple Leaf Educational 1317 HK Emily Lee
30 BNP PARIBAS 16 JANUARY 2015
Overview of China’s private education industry
Private education was first allowed in China in the early 1980s. Private schools have
a higher level of operational independence as they do not operate directly under the
administration of the government unlike public schools. This allows them to have
broader and more diverse curricula and greater funding flexibility.
Market size and trends of China’s private fundamental education industry
China’s private fundamental education industry generated total revenues of about
RMB136.9b in 2013, increasing at a 27.4% CAGR in 2009-13, according to Frost &
Sullivan. The faster growth rate compared to China’s overall fundamental education
industry is primarily due to parents’ and students’ rising preference for private
schools, which resulted in increased enrolments at private schools and increased
revenues from tuition fees and private investments.
EXHIBIT 33: Total revenue generated by China’s private fundamental education industry in 2009-13
Source: Frost & Sullivan Report
Per student expenditure on private fundamental education increased significantly
during 2009-13 at a CAGR of about 37.2%, 16.0%, 14.7% and 11.6% respectively for
preschools, elementary schools, middle schools and high schools.
EXHIBIT 34: Per student expenditure on private fundamental education, 2009-13
Source: Frost & Sullivan Report
According to the Frost & Sullivan Report, the number of students enrolled in private
fundamental education in China rose about 4.8% y-y to 32.9m in 2013, despite a
decrease in overall student enrolments. Driven by favourable government policies for
private schools and an increasing recognition among parents of the value of private
schools, the number of students enrolled in private schools is expected to increase to
about 5.8m, or about 8.6% CAGR in 2013-17. Frost & Sullivan also expects the
0
20
40
60
80
100
120
140
160
2009 2010 2011 2012 2013
(RMB b)
2009-13 CAGR: 27.4%
0
2,000
4,000
6,000
8,000
10,000
12,000
2009 2010 2011 2012 2013
(RMB) Preschools Elementary schools
Middle schools High schools
China Maple Leaf Educational 1317 HK Emily Lee
31 BNP PARIBAS 16 JANUARY 2015
penetration rate of private schools in the overall fundamental education system to
rise to about 21.9% in 2017, from about 16.3% in 2013.
EXHIBIT 35: Penetration of private schools in overall fundamental education based on student enrolments
Source: Frost & Sullivan Report
The private preschool segment, the largest segment of the private K-12 education
based on student enrolments, grew at about 15.5% CAGR in 2009-13 to about
20.2m, primarily due to a significant shortage of public preschools and relatively
simple administrative requirements and funding sources from China’s government.
This segment had a penetration rate of about 51.9% in 2013.
Student enrolments in the private elementary school segment grew to about 6.0m in
2013, at a 4.5% CAGR in 2009-13, primarily driven by increasing disposable income
in China and the recognition of the value of private schools in early education. This
segment had a penetration rate of about 6.4% in 2013.
Student enrolments in the private middle school segment remained stable at 4.3m,
representing a CAGR of about -0.1% in 2009-13. This segment had a penetration
rate of about 9.7% in 2013.
Student enrolments in private high school grew to about 2.4m in 2013, at about 0.6%
CAGR in 2009-13. This segment had a penetration rate of about 9.8% in 2013.
EXHIBIT 36: Total private fundamental education student enrolments, 2009-17E
Sources: National Bureau of Statistics of China; Frost & Sullivan Report
0 20 40 60 80 100
2009
2013
2017E
(%)
Private fundamental education Public fundamental education
0
5
10
15
20
25
30
35
40
45
50
2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E
(m persons) Preschools Elementary schools Middle schools High schools
China Maple Leaf Educational 1317 HK Emily Lee
32 BNP PARIBAS 16 JANUARY 2015
China’s international school market
International schools are defined as schools that provide fundamental education with
a set of foreign curricula or an integrated curriculum involving Chinese and foreign
curricula. They are broadly separated into two categories:
1 International schools for foreign students only that offer foreign curricula,
including the International Baccalaureate, A-Level, Advanced Placement, and
official Canadian and Australian curricula; and
2 International schools that cater to Chinese and foreign students, which usually
offer both Chinese and foreign curricula.
In 2013, over 90% of the international schools in China were private schools,
according to the Frost & Sullivan Report. They mainly comprise offshore branches
established by foreign school operators, or joint establishments between foreign
education providers and Chinese domestic schools. International private schools that
offer foreign curricula usually charge significantly higher tuition fees than local private
schools.
Market size and trends of international schools in China
China’s international school market generated total revenues of about RMB18.4b in
2013, up about 23.0% CAGR from 2009. The rapid growth was primarily driven by
rising per student tuition fees per annum and increasing student enrolments in the
international school market. The rapid growth rate was mainly due to tuition fee
increases.
EXHIBIT 37: Total revenues of international school market
Source: Frost & Sullivan Report
Student enrolments in China’s international school market
The total number of students enrolled in international schools reached about 156,500
in 2013, rising at about 18.6% CAGR during 2009-13. Of the 156,500 students
enrolled in 2013, 100,600 were enrolled in international schools that admit Chinese
and foreign students.
0
2
4
6
8
10
12
14
16
18
20
2009 2010 2011 2012 2013
(RMB b)
2009-2013 CAGR: 23.0%
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EXHIBIT 38: Total student enrolment in international schools
Note: The data in the above diagram is based on statistics as at 31 August of each year Source: Frost & Sullivan Report
Competitive landscape
The international school market is fragmented in China with hundreds of school
operators. The top-five international schools comprised about 17.5% of the market in
2013-14 in terms of student enrolments.
EXHIBIT 39: China’s top five international schools, ranked by student enrolments in the 2013-14 school year
Ranking School operator Student enrolments
in 2013-14 school year Market share
2013-14 school year
(persons) (%)
1 Maple Leaf 13,513 7.6
2 Nord Anglia 4,859 2.7
3 Shanghai United 4,737 2.7
4 Dulwich 4,162 2.3
5 Yew Chung 3,866 2.2
Note: The data in the above table is based on statistics as at 31 August 2014. The ranking is based on student enrolment, which only takes into account the international sections of each school operator and excludes domestic or national sections which are beyond the definition of international schools. Source: Frost & Sullivan Report
According to the Frost & Sullivan Report, the total number of students enrolled in
international high schools reached approximately 65,005 in the 2013-14 school year.
The top 5 international high school operators, in aggregate, comprised about 17.9%
market share in the 2013-14 school year in terms of student enrolments, and Maple
Leaf was the largest player with a market share of approximately 9.0%.
EXHIBIT 40: Top 5 international high schools in China, ranked by student enrolments in the 2013-14 school year
Ranking School operator Student enrolment
2013-14 school year Market share
2013-14 school year
(persons) (%)
1 Maple Leaf 5,836 9.0
2 Dulwich 1,476 2.3
3 NIT Education 1,462 2.2
4 Huamei 1,432 2.2
5 Shanghai American 1,425 2.2
Note: The data in the above table is based on statistics as at 31 August 2014. The ranking is based on student enrolment, which only takes into account the international sections of each school operator and excludes domestic or national sections which are beyond the definition of international schools. Source: Frost & Sullivan Report
0
50
100
150
200
250
300
2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E
('000)
Total student enrollment at international school
Total student enrollment at international school (excluding schools for foreigners only)
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International schools generally charge higher tuition fees than local private schools,
and hence most of them are located in cities with populations that have relatively
higher annual disposable incomes. Beijing, Shanghai and Guangzhou are the three
largest cities in the international school market, followed by emerging cities such as
Dalian, Chongqing, Tianjin and Wuhan. The average tuition fees charged by the top-
five international schools in China in the 2014-15 school year were about
RMB112,060 for preschools, RMB141,131 for elementary schools, RMB156,262 for
middle schools and RMB167,920 for high schools.
EXHIBIT 41: Average annual tuition fees of the Top 5 international schools in China in the 2014-15 school year
Ranking School operator Preschools Elementary schools Middle schools High school
(RMB) (RMB) (RMB) (RMB)
1 Maple Leaf 16,500 20,456 26,410 49,000
2 Nord Anglia 145,200 206,000 224,400 241,500
3 Shanghai United 95,500 93,000 109,800 147,000
4 Dulwich 155,800 193,600 212,600 186,700
5 Yew Chung 147,300 192,600 208,100 215,400
Note: The data in the above table is based on statistics as at 31 August 2014. The tuition fees do not include incidental expenses, and are applicable to the 2014-15 school year. The figures are calculated by the arithmetical average of each individual branch, sector or grade as announced by school operators. Maple Leaf’s foreign national schools are not included. Source: Frost and Sullivan Report
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Company profile
EXHIBIT 42: Members of the Board of Directors
Name Age Position Role and responsibility Date of appointment
as director Date of joining Maple Leaf
Shu Liang Sherman Jen 60 Executive Director, Chairman of the Board and Co-CEO
Overseeing management, business and strategy Jun-07 18-May-94
Zhenwan Liu 58 Executive Director, Vice Chairman of the Board, President and Co-CEO
General operation, strategic planning and business direction
Jun-14(1) 10-Mar-14
Jingxia Zhang 57 Executive Director, Senior Vice President and Co-CFO
Overseeing financial and school operations Mar-08 10-Apr-95
James William Beeke 64 Executive Director, Vice President and BC programme Superintendent
Overseeing overall school management and the BC programme
Apr-14 25-Apr-14(2)
Howard Robert Balloch 63 Non-Executive Director Supervising the overall management and strategic planning of the group
Mar-08 12-Mar-08
Peter Humphrey Owen 67 Independent non-Executive Director
Chairman of the Remuneration Committee, and member of the Nomination and Audit committees, supervising and providing independent judgment to the Board
Jun-14(1)
Chak Kei Jack Wong 42 Independent non-Executive Director
Member of Audit, Remuneration and Nomination committees, supervising and providing independent judgement to the Board
Jun-14(1)
Lap Tat Arthur Wong 54 Independent non-Executive Director
Chairman of the Audit Committee Jun-14(1)
(1) Effective from the listing date. (2) Mr. James William Beeke previously worked for Maple Leaf from 2005 to 2009. He was a director from 12 March 2008 to 20 January 2010, and was reappointed on 25 April 2014. Sources: China Maple Leaf Educational Systems; BNP Paribas
Executive Directors
Shu Liang Sherman Jen (任書良任書良任書良任書良), aged 60, is the company’s founder. Mr. Jen was appointed executive director in June 2014, and is responsible for the overall
business and strategy of the group, including the introduction of the dual-diploma
school model. He has been chairman of the Board of Directors since 2007, and co-
chief executive officer (“Co-CEO”) since March 2014. He has been president of
Dalian Maple Leaf International School since 1995, chairman of Dalian Maple Leaf
Educational Group Ltd since 2003, and a director of Maple Leaf Educational
Systems Ltd since 1992, Tech Global Investment Ltd since 2007, Hong Kong Maple
Leaf Educational Systems Ltd since 2009 and Beipeng Software since 2011.
Mr. Jen has more than 19 years of experience in the education industry. In 2004, he
was selected as one of the most influential figures in the private education industry in
China by sohu.com. In 2005, he received the Outstanding Chinese Entrepreneur
Award from the Overseas Chinese Affairs Office of the State Council of China. In
2011, he was honoured as one of the ‘Top Ten Figures of our Time’ by a group of
media organisations and industry associations. In 2013, he received the Governor
General’s Medallion from David Johnston, Governor General of Canada, for his
contributions to international education. Mr. Jen has not held any directorship role in
any other listed company in the last three years.
Mr. Jen received his Bachelor of Arts degree in English Language and Arts from
Beijing Foreign Languages University, China, in May 1978, his Master of Business
Administration by distance learning from the University of Wales, New Port, United
Kingdom, in September 2005 and an Honorary Doctor of Laws degree (Hon. LL.D)
from Royal Roads University in British Columbia, Canada, in June 2013.
Zhenwan Liu (柳振萬柳振萬柳振萬柳振萬), aged 58, was appointed as an executive director and vice chairman of the Board in June 2014. Mr. Liu has been the company’s president and
Co-CEO since 10 March 2014, and is primarily responsible for its general operation,
strategic planning and business direction.
Prior to joining the company, Mr. Liu worked as a teacher, youth league secretary
and head of the ethics education and research office at Dalian Polytechnic University
from December 1981 to December 1990, where he was responsible for lecturing and
managing student activities. He was the deputy director of the member education
office of the publicity department of Dalian Municipal Party Committee and the
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director of planning and research division of Dalian Municipal Spiritual Civilization
Office, between December 1990 and August 1996, and later, the deputy director of
Dalian Municipal Spiritual Civilization Office (August 1996 to April 1998). He served
as the deputy head of Dalian Culture Bureau between April 1998 and November
1999, where he was responsible for the planning and coordination of cultural affairs.
He was the deputy head and deputy party secretary of Dalian Tourist Administration
between November 1999 and June 2000. From June 2000 to December 2006, he
was the head and party secretary of Dalian Tourist Administration, responsible for the
strategic planning and development of local tourism. He served as deputy secretary
general, office head and party secretary at the municipal government office of Dalian
from December 2006 to April 2010, and was responsible for the organisation,
coordination and management of the municipal government’s daily affairs. From April
2010 to February 2014, he served as the secretary of the party committee and the
chairman of the University Council at Dalian University of Foreign Languages where
he was responsible for implementing educational policies, managing educational
research and cultivating professional personnel. Mr. Liu has not held any directorship
role in any other listed company in the last three years.
Mr. Liu received a Bachelor’s degree in Mathematics from Dalian Polytechnic
University in January 1982, a Bachelor’s degree in Political Education from Liaoning
Normal University in July 1987 and a Master’s of Business Administration from
Dalian University of Technology in April 1997. Mr. Liu was awarded the title of
professorship by Dalian University of Foreign Languages in September 2010.
Jingxia Zhang (張景霞張景霞張景霞張景霞), aged 57, is the senior vice president and co-chief financial officer (Co-CFO) of the company and was appointed executive director in June 2014.
Ms. Zhang joined the company on 10 April 1995 and is primarily responsible for the
overall management, financial operations and human resources of the schools.
Before joining the company, Ms. Zhang was the director of finance of Jilin Province
Dunhua City Pharmaceutical Factory, a Chinese pharmaceutical manufacturer,
where she managed its accounts and financial operations. Ms. Zhang has not held
any directorship roles in any other listed companies in the last three years. Ms.
Zhang received her Financial Accounting diploma by distance learning from Jilin
Accounting School, China, in July 1991.
James William Beeke, aged 64, is the company’s director, vice president and BC
programme superintendent. He was appointed executive director in June 2014. Mr.
Beeke previously served as the vice chairman of the Board and the superintendent
of the company’s BC programme from 2005 to 2009. Mr. Beeke oversees the BC
programme’s operation and the schools.
Prior to joining the group, Mr. Beeke was employed by the British Columbia
provincial government as deputy inspector from 1996 to 1998 and, later, inspector
from 1998 to 2005, for the Ministry of Education of the BC provincial government. As
inspector, he was responsible for the inspection, certification and funding of all
independent schools in the province, and developed and directed BC’s Offshore
School Certification Programme. Since September 2009, he has been president of
Signum International Educational Services, Inc., a company that provides
educational consultant services to schools in Canada and internationally, where he
was responsible for assisting schools with board governance and strategic
development planning, performing school reviews, conducting principal evaluations
and providing analysis and comparisons of provincial curricula. Mr. Beeke has not
held any directorship roles in any other listed company in the last three years.
Mr. Beeke received his Bachelor of Arts degree and Master of Arts degree from
Western Michigan University in Michigan, United States, in December 1971 and
August 1973, respectively. He received the Certificate of Qualification from the British
Columbia Teachers in June 1991, Certificate of Recognition from the British
Columbia Minister of Education in 1991, Certificates of Recognition from the Chinese
Consulate (Vancouver, Canada) and from British Columbia Ministry of Education in
June 2005 and Certificate of Honorary Award from Liaoning Provincial Government
of China in 2006.
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Non-Executive Directors
Howard Robert Balloch, aged 63, was appointed non-executive director of the
company in June 2014 and supervises the overall management and strategic
planning at the group. Mr. Balloch has been a director since 12 March 2008.
Mr. Balloch is a veteran Canadian diplomat. Before joining the group, he served as
Canadian Ambassador to China and Mongolia from April 1996 to July 2001, and to
North Korea from March 2000 to July 2001. Subsequently, he served as the
president and chief executive officer of the Canada China Business Council, a
private, non-profit business association facilitating and promoting trade and
investments between Canada and China, from 2001 to 2006, and is currently its vice
chairman.
Mr. Balloch received a Bachelor of Arts degree and a Master of Arts degree from
McGill University, Canada, in June 1973 and June 1974, respectively.
Independent Non-Executive Directors
Peter Humphrey Owen, aged 67, was appointed independent non-executive
director in June 2014. He is primarily responsible for supervising and providing
independent judgment to the Board.
Prior to joining the group, Mr. Owen served as the vice chair of the Workers
Compensation Review Board of British Columbia in 1986. Subsequently, he held
various positions at the Ministry of Education of the British Columbia provincial
government, including director, executive director, and assistant deputy minister
responsible for education-related legislation, governance, international education,
policy and planning, and a variety of programme areas, until May 2011. Mr. Owen
has not held any directorship role in any other listed company in the last three years.
Mr Owen received a Bachelor of Arts degree from Simon Fraser University, Canada,
in May 1976 and a Bachelor of Law degree (LLB) from the University of British
Columbia, Canada, in May 1979.
Chak Kei Jack Wong (王澤基王澤基王澤基王澤基), aged 42, was appointed independent non-executive director in June 2014. Mr. Wong is primarily responsible for supervising and providing
independent judgment to the Board.
Prior to joining the group, Mr. Wong was managing director and head of structuring in
the investment banking department of Barclays Capital Asia (including Japan). He
was responsible for client risk advisory and risk management solutions across all
asset classes. Before that, Mr. Wong was a managing director and trader in UBS
London and Hong Kong, co-heading the APAC structured products group which
trades and designs products in all asset classes and hybrids. He spent a number of
years in London in Goldman Sachs as executive director, working as a
strategist/quant and trader for rate, FX and inflation. Prior to that, he was a
quantitative analyst in credit derivatives and emerging markets in Morgan Stanley,
London.
Mr. Wong studied in The Chinese University of Hong Kong and University of
California at Berkeley. His major was Electrical Engineering with minors in Pure
Mathematics and French. He obtained his DPhil and MPhil degrees in Economics
from the University of Oxford. He was a Rhodes Scholar of Hong Kong for 1995.
Lap Tat Arthur Wong (黃黃黃黃立達立達立達立達), aged 54, was appointed independent non-executive director of the company in June 2014. Mr. Wong is primarily responsible for
supervising and providing independent judgment to the Board.
Between 1982 and 2008, Mr. Wong held various positions in Deloitte Touche
Tohmatsu (“Deloitte”) in Hong Kong, San Jose and Beijing, with the latest position as
a partner in the Beijing office. Subsequently he served as the chief financial officer of:
Asia New Energy Holdings Pte. Ltd, a manufacturer of fertilisers, chemicals and new
energy products (2008-09); Nobao Renewable Energy Holding Ltd, a renewable
energy company (March 2010 to November 2010); GreenTree Inns Hotel
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Management Group, Inc., an economy hotel chain (from 2011 to 2012); and Beijing
Radio Cultural Transmission Company Limited, a music production and music data
management services company (since January 2013).
Mr. Wong previously served as an independent non-executive director at Besunyen
Holdings Co Ltd, from July 2010 to April 2014. He currently serves as an
independent non-executive director and chairperson of the audit committee of the
following listed companies: VisionChina Media, Inc., (VISN) since December 2011;
China Automotive Systems, Inc., (CAAS) since May 2012; Daqo New Energy Corp.,
(DQ) since December 2012; Petro-king Oilfield Services Ltd, (02178) since February
2013; and YOU On Demand Holdings, Inc., (YOD) since January 2014.
Mr. Wong received a Higher Diploma in Accountancy from the Hong Kong
Polytechnic University in November 1982 and a Bachelor of Science degree in
Applied Economics from the University of San Francisco in December 1988. He
became an associate of the Hong Kong Institute of Certified Public Accountants in
1985 and fellow in 1995. He became a fellow of the Association of Chartered
Certified Accountants in 1990 and a member of the American Institute of Certified
Public Accountants in 1992.
EXHIBIT 43: Maple Leaf’s major development milestones
Date Development milestones
Sep-96 Dalian Maple Leaf International School (middle and elementary school) opened in Jinshitan, Dalian
Apr-98 Dalian Maple Leaf High School was certified by the BCMOE
Jun-99 The first graduating class from Dalian Maple Leaf High School received their high school diplomas
Sep-05 First preschool, Dalian Maple Leaf Qianshan Xincheng Preschool, opened in Dalian
Jun-07 Acquired Dalian Maple Leaf Yuanjing Fengqiaoyuan Preschool, the name of which was later changed to Dalian Maple Leaf Fengqiao Preschool
Acquired Dalian Lanxi Wenyuan Preschool. Its name was later changed to Dalian Maple Leaf Lanxi Wenyuan Preschool
Sep-07 Wuhan Maple Leaf International School (High School) opened
May-08 Acquired Dalian Jiabao Sunshine Preschool. Its name was later changed to Dalian Maple Leaf Jiabao Preschool
Sep-08 Tianjin Taida Maple Leaf International School (high, middle and elementary school) opened
May-09 Acquired Dalian Jinhai Preschool. Its name was later changed to Dalian Maple Leaf Jinhai Preschool
Sep-12 Opened Henan Maple Leaf International School (middle and elementary school) – Maple Leaf’s first school jointly developed with local government
Nov-14 Listed on the Hong Kong Stock Exchange
Source: China Maple Leaf Educational Systems
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Shareholding structure
The company raised estimated net proceeds of HKD866.2m through its listing on the
Hong Kong Stock Exchange, based on a listing price of HKD2.88 per share.
After the IPO, China Maple Leaf’s chairman and founder Shu Liang Sherman Jen
effectively owns 54% of the company.
Sequoia Capital China Growth Fund I, L.P. entered into a preferred shares purchase
agreement on 29 February 2008, subscribing 18,000,000 preferred shares for an
aggregate consideration of RMB180m. Upon the completion of the pre-IPO
Investment, Sequoia Capital China held approximately 20% of the then-issued share
capital of the company. The net proceeds from the pre-IPO investment have been
fully utilised for working capital, business expansion and other corporate purposes.
Immediately after the completion of the IPO, Sequoia Capital China held
approximately 17.18% of the total issued share capital of the company. The cost per
share after conversion into shares is approximately RMB0.79.
EXHIBIT 44: Shareholding structure (post-IPO)
Source: China Maple Leaf Educational Systems
53.81% 17.18% 1.12% 1.77% 0.82% 0.17% 25.04%
Sherman Investment Holdings
Sequoia Capital China Growth Fund I and affiliates
Shipston Maple Leaf Holdings
TBIG Education Holdings
Jen Shu-LingOther individuals
Public shareholders
China Maple Leaf EducationalSystems Limited
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Use of IPO proceeds
The company intends to use the net proceeds of the IPO for the following purposes:
§ approximately 30% towards the expansion of its school network, in particular by developing new schools in major cities in China;
§ approximately 10% towards the maintenance, renovation and upgrade of its existing schools, such as the boys’ schools on the Dalian campus;
§ approximately 26% towards the acquisition of schools, except for foreign national schools and preschools, in major cities in China to supplement its school network.
The company will consider various factors in selecting acquisition targets,
including, among other things, the general socio-economic condition of the city in
which a target school is located, the demand for international education in such
cities and their neighbouring areas and the level of government support in
promoting international education. The company plans to open new schools using
the premises and land acquired from the target schools. It does not intend to
jointly operate such new schools with the relevant original school operators. It
expects to be the sole sponsor of each of these new schools and have exclusive
rights to operate each new school. Also, it expects to consolidate the new schools
into the group using the same contractual arrangements;
§ approximately 24% to repay bank loans; and
§ approximately 10% as working capital.
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Risks
We believe the company is subject to the following major risks, among others:
§ The company may not be able to maintain or raise the tuition levels at its schools due to competition in the education industry sector, or obtain requisite approvals.
Rising competition may lead to market share loss, departure of key employees
and increased capital expenditures.
§ Parents and students may become less interested or lose interest in the BC high school diploma, the BC Global Education Programme or BC education as a
whole.
§ Maple Leaf may fail to obtain or renew China or BC certifications or the requisite China government approvals which are necessary to offer dual diplomas to its
high school graduates.
§ The company may fail to obtain all necessary approvals, licences and permits and to make all necessary registrations and filings in China.
§ It may fail to recruit and retain dedicated and capable teachers and other school personnel.
§ Chinese laws and regulations currently prohibit foreign ownership of elementary and middle schools in China. Furthermore, although PRC laws and regulations
allow foreign investment in foreign national schools, preschools and high schools,
government authorities either impose restrictions in this respect or, as a matter of
policy, withhold approvals for such ventures. If the PRC government finds that the
agreements that establish the structure for operating Maple Leaf in China do not
comply with applicable laws and regulations, Maple Leaf could face severe
penalties and its business may be materially affected.
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Corporate governance
Board structure
Number of Independent Directors (ID)
3
Percentage of IDs in the board (%)
37.5
ID participation/attendance at board meetings
N.A
ID participation in audit/remuneration committees (%)
N.A.
ID terms (years of service, re-election/replacement procedures) No more than 3 years, rotation at least once every 3 years
Sources: China Maple Leaf Educational Systems; BNP Paribas
Audit practices
Auditor
Deloitte
Length of service
>1 years
Reporting incidents
Nil
Fee track record
Audit fee in FY14 was RMB7.22m
Policy on change of Audit firm Reviewed every year with regard to audit fees, process and effectiveness
Sources: China Maple Leaf Educational Systems; BNP Paribas
Compensation and remuneration
Directors' remuneration vs. earnings/ROE/share performance
RMB10.032m (4.633m share-based) in FY14, up 117.4% y-y, accounting for 24.4% of FY14 earnings
Changes/stability in senior management
Zhenwan Liu and James William Beeke were appointed in 2014, the rest of the senior management were appointed around 2008.
Incidents of termination of senior management
Nil
Track record on Insider sales Nil
Sources: China Maple Leaf Educational Systems; BNP Paribas
Shareholders’ rights
Communication - shareholder participation in AGMs/EGMs N.A.
Related party transactions Total RMB3.544m between Mr. Sherman Jen and Mrs Ren Shu’e (Sherman Jen’s sister) are unsecured, interest free and repayable on demand
Voting issues - policies, incidents of rejected proposals All ordinary resolutions are passed by poll
Sources: China Maple Leaf Educational Systems; BNP Paribas
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Financial statements China Maple Leaf Educational
Profit and Loss (RMB 1000) Year Ending Aug 2013A 2014A 2015E 2016E 2017E
Revenue 471,219 540,269 633,412 728,372 838,260
Cost of sales (268,751) (305,148) (352,811) (403,518) (462,719)
Gross profit 202,468 235,121 280,602 324,854 375,540
Other operating income 4,960 5,456 5,501 5,545 5,590
Operating costs (48,646) (84,941) (76,235) (88,217) (106,784)
Operating EBITDA 158,782 155,636 209,867 242,182 274,346
Depreciation (29,873) (35,424) (39,663) (46,356) (46,356)
Goodwill amortisation 0 0 0 0 0
Operating EBIT 128,909 120,212 170,205 195,825 227,990
Net financing costs (15,554) (15,493) (13,088) (11,237) (7,827)
Associates 0 0 0 0 0
Recurring non operating income 0 0 0 0 0
Non recurring items (72,130) (56,283) 0 0 0
Profit before tax 41,225 48,436 157,117 184,589 220,163
Tax (8,043) (8,400) (12,569) (15,136) (18,053)
Profit after tax 33,182 40,036 144,547 169,452 202,110
Minority interests 0 0 0 0 0
Preferred dividends 0 0 0 0 0
Other items 0 0 0 0 0
Reported net profit 33,182 40,036 144,547 169,452 202,110
Non recurring items & goodwill (net) 72,161 88,971 0 0 0
Recurring net profit 105,343 129,007 144,547 169,452 202,110
Per share (RMB)
Recurring EPS * 0.14 0.16 0.11 0.13 0.15
Reported EPS 0.04 0.05 0.11 0.13 0.15
DPS 0.00 0.00 0.00 0.00 0.00
Growth
Revenue (%) 14.0 14.7 17.2 15.0 15.1
Operating EBITDA (%) 1.4 (2.0) 34.8 15.4 13.3
Operating EBIT (%) (1.3) (6.7) 41.6 15.1 16.4
Recurring EPS (%) 28.2 20.9 (34.0) 17.2 19.3
Reported EPS (%) (54.3) 19.1 112.7 17.2 19.3
Operating performance
Gross margin (%) 43.0 43.5 44.3 44.6 44.8
Operating EBITDA margin (%) 33.7 28.8 33.1 33.2 32.7
Operating EBIT margin (%) 27.4 22.3 26.9 26.9 27.2
Net margin (%) 22.4 23.9 22.8 23.3 24.1
Effective tax rate (%) 19.5 17.3 8.0 8.2 8.2
Dividend payout on recurring profit (%) 0.0 0.0 0.0 0.0 0.0
Interest cover (x) 8.3 7.8 13.0 17.4 29.1
Inventory days 0.0 0.0 0.0 0.0 0.0
Debtor days 0.0 0.0 0.0 0.0 0.0
Creditor days 520.0 543.4 564.6 576.3 581.2
Operating ROIC (%) 93.8 36.8 31.8 33.5 36.4
ROIC (%) 36.9 21.9 22.4 23.8 26.1
ROE (%) 26.3 29.2 16.4 12.3 12.9
ROA (%) 7.3 7.5 6.3 5.8 6.2
*Pre exceptional, pre-goodwill and fully diluted
Revenue By Division (RMB 1000) 2013A 2014A 2015E 2016E 2017E
High school tuition 259,205 288,041 332,682 382,875 428,009
Middle school tuition 68,150 79,259 99,178 116,584 146,590
Elementary school tuition 37,851 59,779 76,869 87,575 105,752
Foreign national school tuition 14,376 14,877 16,045 21,404 25,073
Preschool tuition 26,380 24,792 26,861 28,772 32,223
Textbooks 17,954 23,344 30,347 37,934 45,521
Summer and winter camp 26,234 24,832 25,577 26,600 27,664
Other educational services 21,069 25,345 25,852 26,627 27,426
Sources: China Maple Leaf Educational Systems; BNP Paribas estimates
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Financial statements China Maple Leaf Educational
Cash Flow (RMB 1000) Year Ending Aug 2013A 2014A 2015E 2016E 2017E
Recurring net profit 105,343 129,007 144,547 169,452 202,110
Depreciation 29,873 35,424 39,663 46,356 46,356
Associates & minorities 0 0 0 0 0
Other non-cash items 30,427 35,622 20,362 19,178 16,046
Recurring cash flow 165,643 200,053 204,572 234,987 264,512
Change in working capital 84,662 145,888 127,825 135,237 153,391
Capex - maintenance 0 0 0 0 0
Capex - new investment (200,135) (110,765) (222,313) (227,504) (233,576)
Free cash flow to equity 50,170 235,176 110,083 142,719 184,327
Net acquisitions & disposals 0 (158,000) 0 0 0
Dividends paid 0 0 0 0 0
Non recurring cash flows (27,066) 3,448 (2,604) (9,787) (2,553)
Net cash flow 23,104 80,624 107,479 132,933 181,775
Equity finance 0 0 687,460 0 0
Debt finance 89,346 (76,941) (36,755) (42,826) (77,687)
Movement in cash 112,450 3,683 758,184 90,107 104,087
Per share (RMB)
Recurring cash flow per share 0.21 0.25 0.15 0.18 0.20
FCF to equity per share 0.06 0.30 0.08 0.11 0.14
Balance Sheet (RMB 1000) Year Ending Aug 2013A 2014A 2015E 2016E 2017E
Working capital assets 16,256 28,626 28,163 33,201 38,838
Working capital liabilities (1,048,199) (738,882) (868,137) (1,006,222) (1,163,280)
Net working capital (1,031,943) (710,256) (839,974) (973,021) (1,124,442)
Tangible fixed assets 1,177,025 1,218,897 1,401,324 1,582,223 1,769,257
Operating invested capital 145,082 508,641 561,350 609,201 644,815
Goodwill 1,982 1,982 1,982 1,982 1,982
Other intangible assets 0 0 0 0 0
Investments 3,493 0 0 0 0
Other assets 219,829 216,127 227,244 240,431 247,020
Invested capital 370,386 726,750 790,575 851,614 893,817
Cash & equivalents (409,303) (542,073) (1,300,213) (1,390,265) (1,494,332)
Short term debt 215,000 223,500 199,833 168,244 98,384
Long term debt * 60,000 0 0 0 0
Net debt (134,303) (318,573) (1,100,380) (1,222,021) (1,395,948)
Deferred tax 14,347 19,171 20,130 21,136 22,193
Other liabilities 72,700 558,918 575,585 587,807 600,770
Total equity 417,642 467,234 1,295,241 1,464,692 1,666,803
Minority interests 0 0 0 0 0
Invested capital 370,386 726,750 790,575 851,614 893,817
* includes convertibles and preferred stock which is being treated as debt
Per share (RMB)
Book value per share 0.54 0.61 0.97 1.10 1.25
Tangible book value per share 0.54 0.60 0.97 1.10 1.25
Financial strength
Net debt/equity (%) (32.2) (68.2) (85.0) (83.4) (83.8)
Net debt/total assets (%) (7.3) (15.9) (37.2) (37.6) (39.3)
Current ratio (x) 0.3 0.6 1.2 1.2 1.2
CF interest cover (x) 17.1 23.3 26.4 33.9 54.4
Valuation 2013A 2014A 2015E 2016E 2017E
Recurring P/E (x) * 12.5 10.3 15.6 13.3 11.2
Recurring P/E @ target price (x) * 17.1 14.2 21.5 18.3 15.3
Reported P/E (x) 39.6 33.3 15.6 13.3 11.2
Dividend yield (%) 0.0 0.0 0.0 0.0 0.0
P/CF (x) 7.9 6.7 11.0 9.6 8.5
P/FCF (x) 26.2 5.7 20.5 15.8 12.3
Price/book (x) 3.1 2.8 1.7 1.5 1.4
Price/tangible book (x) 3.1 2.8 1.7 1.5 1.4
EV/EBITDA (x) ** 7.4 6.9 5.1 4.5 3.5
EV/EBITDA @ target price (x) ** 10.5 10.1 8.3 8.0 6.5
EV/invested capital (x) 3.2 1.4 1.5 1.2 1.0
* Pre exceptional, pre-goodwill and fully diluted ** EBITDA includes associate income and recurring non-operating income
Sources: China Maple Leaf Educational Systems; BNP Paribas estimates
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Disclaimers and Disclosures
APPENDIX
DISCLAIMERS AND DISCLOSURES APPLICABLE TO NON-US BROKER-DEALER(S): BNP Paribas Securities (Asia) Ltd
ANALYST(S) CERTIFICATION
Emily Lee, BNP Paribas Securities (Asia) Ltd, +852 2825 1862, [email protected].
The analyst(s) or strategist(s) herein each referred to as analyst(s) named in this report certify(ies) that (i) all views expressed in this report accurately reflect the personal view of the analyst(s) with regard to any and all of the subject securities, companies or issuers mentioned in this report; and (ii) no part of the compensation of the analyst(s) was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the research analyst herein. Analysts mentioned in this disclaimer are employed by a non-US affiliate of BNP Paribas Securities Corp., and are not registered/ qualified pursuant to NYSE and/or FINRA regulations.
IMPORTANT DISCLOSURES REQUIRED IN THE UNITED STATES BY FINRA RULES AND OTHER JURISDICTIONS "BNP Paribas” is the marketing name for the global banking and markets business of BNP Paribas Group. No portion of this report was prepared by BNP Paribas Securities Corp (US) personnel, and it is considered Third-Party Affiliate research under NASD Rule 2711. The following disclosures relate to relationships between companies covered in this research report and the BNP entity identified on the cover of this report, BNP Securities Corp., and other entities within the BNP Paribas Group (collectively, "BNP Paribas").
The disclosure column in the following table lists the important disclosures applicable to each company that has been rated and/or recommended in this report:
Company Ticker Disclosure (as applicable)
N/A N/A N/A
BNP Paribas represents that: 1. Within the past year, it has managed or co-managed a public offering for this company, for which it received fees. 2. It had an investment banking relationship with this company in the last 12 months. 3. It received compensation for investment banking services from this company in the last 12 months. 4. It expects to receive or intends to seek compensation for investment banking services from the subject company/ies in the next 3 months. 5. It beneficially owns 1% or more of any class of common equity securities of the subject company. 6. It makes a market in securities in respect of this company. 7. The analyst(s) or an individual who assisted in the preparation of this report (or a member of his/her household) has a financial interest position in
securities issued by this company. The financial interest is in the common stock of the subject company, unless otherwise noted. 8. The analyst (or a member of his/her household) is an officer, director, or advisory board member of this company or has received compensation from the
company.
IMPORTANT DISCLOSURES REQUIRED IN KOREA The disclosure column in the following table lists the important disclosures applicable to each Korea listed company that has been rated and/or recommended in this report:
Company Ticker Price (as of 15-Jan-2015 closing price) Interest
N/A N/A N/A N/A
1. The performance of obligations of the Company is directly or indirectly guaranteed by BNP Paribas Securities Korea Co. Ltd (“BNPPSK”) by means of payment guarantees, endorsements, and provision of collaterals and/or taking over the obligations.
2. BNPPSK owns 1/100 or more of the total outstanding shares issued by the Company. 3. The Company is an affiliate of BNPPSK as prescribed by Item 3, Article 2 of the Monopoly Regulation and Fair Trade Act. 4. BNPPSK is the financial advisory agent of the Company for the Merger and Acquisition transaction or of the Target Company whereby the size of the
transaction does not exceed 5/100 of the total asset of the Company or the total number of outstanding shares. 5. BNPPSK has taken financial advisory service regarding listing to the Company within the past 1 year. 6. With regards to the tender offer initiated by the Company based on Item 2, Article 133 of the Financial Investment Services and Capital Market Act,
BNPPSK acts in the capacity of the agent for the tender offer designated either by the Company or by the target company, provided that this provision shall apply only where tender offer has not expired.
7. The listed company which issued the stocks in question in case where 40 days has not passed since the new shares were listed from the date of entering into arrangement for public offering or underwriting-related agreement for issuance of stocks
8. The Company that has signed a nominated advisor contract with BNPPSK as defined in Item 2 of Article 8 of the KONEX Market Listing Regulation. 9. The Company is recognized as having considerable interests with BNPPSK in relation to No.1 to No. 8. 10. The analyst or his/her spouse owns (including delivery claims of marketable securities based on legal regulations and trading and misc. contracts) the
following securities or rights (hereinafter referred to as “Securities, etc.” in this Article) regardless of whose name is used in the trading. 1) Stocks, bond with stock certificate, and certificate of pre-emptive rights issued by the Company whose securities dealings are being solicited. 2) Stock options of the Company whose securities dealings are being solicited. 3) Individual stock future, stock option, and warrants that use the stocks specified in Item 1) as underlying.
GENERAL DISCLAIMER This report was produced by BNP Paribas Securities (Asia) Ltd, member company(ies) of the BNP Paribas Group. This report is for the use of intended recipients only and may not be reproduced (in whole or in part) or delivered or transmitted to any other person without our prior written consent. By accepting this report, the recipient agrees to be bound by the terms and limitations set forth herein. This report does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Customers are advised to use the information contained herein as just one of many inputs and considerations prior to engaging in any trading activity. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy or sell any securities or other
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46 BNP PARIBAS 16 JANUARY 2015
investments. This report is not intended to provide the sole basis of any evaluation of the subject securities and companies mentioned in this report. Information and opinions contained in this report are published for reference of the recipients and are not to be relied upon as authoritative or without the recipient’s own independent verification, or taken in substitution for the exercise of judgment by the recipient. Additionally, the products mentioned in this report may not be available for sale in certain jurisdictions. As an investment bank with a wide range of activities, BNP Paribas may face conflicts of interest, which are resolved under applicable legal provisions and internal guidelines. You should be aware, however, that BNP Paribas may engage in transactions in a manner inconsistent with the views expressed in this document, either for its own account or for the account of its clients.
Australia: This report is being distributed in Australia by BNP Paribas Sydney Branch, registered in Australia as ABN 23 000 000 117 at 60 Castlereagh Street Sydney NSW 2000. BNP Paribas Sydney Branch is licensed under the Banking Act 1959 and the holder of Australian Financial Services Licence no. 238043 and therefore subject to regulation by the Australian Securities & Investments Commission in relation to delivery of financial services. By accepting this document you agree to be bound by the foregoing limitations, and acknowledge that information and opinions in this document relate to financial products or financial services which are delivered solely to wholesale clients (in terms of the Corporations Act 2001, sections 761G and 761GA; Corporations Regulations 2001, division 2, reg. 7.1.18 & 7.1.19) and/or professional investors (as defined in section 9 of the Corporations Act 2001).
Canada: The information contained herein is not, and under no circumstances is to be construed as, a prospectus, an advertisement, a public offering, an offer to sell securities described herein, or solicitation of an offer to buy securities described herein, in Canada or any province or territory thereof. Any offer or sale of the securities described herein in Canada will be made only under an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under applicable securities laws or, alternatively, pursuant to an exemption from the dealer registration requirement in the relevant province or territory of Canada in which such offer or sale is made. The information contained herein is under no circumstances to be construed as investment advice in any province or territory of Canada and is not tailored to the needs of the recipient. To the extent that the information contained herein references securities of an issuer incorporated, formed or created under the laws of Canada or a province or territory of Canada, any trades in such securities must be conducted through a dealer registered in Canada. No securities commission or similar regulatory authority in Canada has reviewed or in any way passed judgment upon these materials, the information contained herein or the merits of the securities described herein, and any representation to the contrary is an offence.
Hong Kong: This report is prepared for professional investors and is being distributed in Hong Kong by BNP Paribas Securities (Asia) Limited to persons whose business involves the acquisition, disposal or holding of securities, whether as principal or agent. BNP Paribas Securities (Asia) Limited, a subsidiary of BNP Paribas, is regulated by the Securities and Futures Commission for the conduct of dealing in securities, advising on securities, providing automated trading services, dealing in futures contacts and advising on corporate finance. For professional investors in Hong Kong, please contact BNP Paribas Securities (Asia) Limited for all matters and queries relating to this report.
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Japan: This report is being distributed to Japanese based firms by BNP Paribas Securities (Japan) Limited or by a subsidiary or affiliate of BNP Paribas not registered as a financial instruments firm in Japan, to certain financial institutions defined by article 17-3, item 1 of the Financial Instruments and Exchange Law Enforcement Order. BNP Paribas Securities (Japan) Limited is a financial instruments firm registered according to the Financial Instruments and Exchange Law of Japan and a member of the Japan Securities Dealers Association, the Financial Futures Association of Japan and the Type II Financial Instruments Firms Association. BNP Paribas Securities (Japan) Limited accepts responsibility for the content of a report prepared by another non-Japan affiliate only when distributed to Japanese based firms by BNP Paribas Securities (Japan) Limited. Some of the foreign securities stated on this report are not disclosed according to the Financial Instruments and Exchange Law of Japan.
Malaysia: This report is issued and distributed by BNP Paribas Capital (Malaysia) Sdn Bhd. The views and opinions in this research report are our own as of the date hereof and are subject to change. BNP Paribas Capital (Malaysia) Sdn Bhd has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only to clients of BNP Paribas Capital (Malaysia) Sdn Bhd. This publication is being provided to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of BNP Paribas Capital (Malaysia) Sdn Bhd.
Philippines: This report is being distributed in the Philippines by BNP Paribas Manila Branch, an Offshore Banking Unit (OBU) of BNP Paribas whose head office is in Paris, France. BNP Paribas Manila OBU is registered as an offshore banking unit under Presidential Decree No. 1034 (PD 1034), and regulated by the Bangko Sentral ng Pilipinas. This report is being distributed in the Philippines to qualified clients of OBUs as allowed under PD 1034, and is qualified in its entirety to the products and services allowed under PD 1034.
Singapore: This report is distributed in Singapore by BNP Paribas Securities (Singapore) Pte Ltd ("BNPPSSL") and may be distributed in Singapore only to an Accredited or Institutional Investor, each as defined under the Financial Advisers Regulations ("FAR") and the Securities and Futures Act (Chapter 289) of Singapore, as amended from time to time. In relation to the distribution to such categories of investors, BNPPSSL and its representatives are exempted under Regulation 35 of the FAR from the requirements in Section 36 of the Financial Advisers Act of Singapore, regarding the disclosure of certain interests in, or certain interests in the acquisition or disposal of, securities referred to in this report. For Institutional and Accredited Investors in Singapore, please contact BNP Paribas Securities (Singapore) Ptd Ltd (company registration number: 199801966C; address: 10 Collyer Quay, 34/F Ocean Financial Centre, Singapore 049315; tel: (65) 6210 1288; fax: (65) 6210 1980) for all matters and queries relating to this report.
South Africa: In South Africa, BNP Paribas Cadiz Securities (Pty) Ltd and BNP Paribas Cadiz Stock Broking (Pty) Ltd (hereinafter referred to as “BNPP Cadiz”) are licensed members of Johannesburg Stock Exchange and are authorised Financial Services Providers and subject to regulation by the Financial Services Board. BNPP Cadiz does not expressly or by implication represent, recommend or propose that the financial products referred to in this report are appropriate to the particular investment objectives, financial situation or particular needs of the recipient.
South Korea: BNP Paribas Securities Korea is registered as a Licensed Financial Investment Business Entity under the FINANCIAL INVESTMENT SERVICES AND CAPITAL MARKETS ACT and regulated by the Financial Supervisory Service and Financial Services Commission. This document does not constitute an offer to sell to or the solicitation of an offer to buy from any person any financial products where it is unlawful to make the offer or solicitation in South Korea. Switzerland: This report is intended solely for customers who are “Qualified Investors” as defined in article 10 paragraphs 3 and 4 of the Swiss Federal Act on Collective Investment Schemes of 23 June 2006 (CISA) and the relevant provisions of the Swiss Federal Ordinance on Collective Investment Schemes of 22 November 2006 (CISO). “Qualified Investors” includes, among others, regulated financial intermediaries such as banks, securities dealers, fund management companies and asset managers of collective investment schemes, regulated insurance companies as well as pension funds and companies with professional treasury operations. This document may not be suitable for customers who are not Qualified Investors and should only be used and passed on to Qualified Investors. For specification purposes, a “Swiss Corporate Customer” is a Client which is a corporate entity, incorporated and existing under the laws of Switzerland and which qualifies as “Qualified Investor” as defined above." BNP Paribas (Suisse) SA is authorised as bank and as securities dealer by the Swiss Federal Market Supervisory Authority FINMA. BNP Paribas (Suisse) SA is registered at the Geneva commercial register under No. CH-270-3000542-1. BNP
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Paribas (Suisse) SA is incorporated in Switzerland with limited liability. Registered Office: 2 place de Hollande, CH-1204 Geneva.
Taiwan: Information on securities that trade in Taiwan is distributed by BNP Paribas Securities (Taiwan) Co., Ltd. Such information is for your reference only. The reader should independently evaluate the investment risks and is solely responsible for their investment decision. Information on securities that do not trade in Taiwan is for informational purposes only and is not to be construed as a recommendation or a solicitation to trade in such securities. BNP Paribas Securities (Taiwan) Co., Ltd. may not execute transactions for clients in these securities. This publication may not be distributed to the public media or quoted or used by the public media without the express written consent of BNP Paribas.
Thailand: Research relating to Thailand and Thailand based issuers is produced pursuant to an arrangement between BNP PARIBAS (“BNPP”) and Finansia Syrus Securities Public Company Limited (“FSS”). FSS International Investment Advisory Securities Co Ltd (“FSSIA”) prepares and distributes research under the brand name “BNP PARIBAS/FSS”. BNPP is not an affiliate of FSSIA or FSS. FSS also publishes a different research product under the brand name “FINANSIA SYRUS,” which is prepared by research analysts who are not part of FSSIA and who may cover the same securities, issuers, or industries that are the subject of this report. The ratings, recommendations, and views expressed in this report may differ from the ratings, recommendations, and views expressed by other research analysts or research teams employed by FSS. This report is being distributed outside Thailand by members of BNP Paribas.
Turkey: This report is being distributed in Turkey by TEB Investment (TEB YATIRIM MENKUL DEGERLER A.S., Teb Kampus D Blok Saray Mah. Kucuksu Cad. Sokullu Sok., No:7 34768 Umraniye, Istanbul, Turkey, Trade register number: 358354, www.tebyatirim.com.tr) and outside Turkey jointly by TEB Investment and BNP Paribas. Information, comments and suggestions on investment given in this material are not within the scope of investment consulting. The investment consulting services are rendered tailor made for individuals by competent authorities considering the individuals’ risk and return preferences. However the comments and recommendations herein are based on general principles. These opinions may not be consistent with your financial status as well as your risk and return preferences. Therefore, making an investment decision only based on the information provided herein may not bear consequences in parallel with your expectations. This material issued by TEB Yatırım Menkul Değerler A.Ş. for information purposes only and may be changed without any prior notification. All rights reserved. No part of this material may be copied or reproduced in any manner without the written consent of TEB Yatırım Menkul Değerler A.Ş. Although TEB Yatırım Menkul Değerler A.Ş. gathers the presented material that is current as possible, it does not undertake that all the information is accurate or complete, nor should it be relied upon as such. TEB Yatırım Menkul Değerler A.Ş. assumes no responsibility whatsoever in respect of or arising out or in connection with the content of this material to third parties. If any third party chooses to use the content of this material as reference, he/she accepts and approves to do so entirely at his/her own risk.
United States: This report may be distributed in the United States only to U.S. Persons who are “major U.S. institutional investors” (as such term is defined in Rule 15a-6 under the Securities Exchange Act of 1934, as amended) and is not intended for the use of any person or entity that is not a “major U.S. institutional investor”. U.S persons who wish to effect transactions in securities discussed herein must do so through BNP Paribas Securities Corp., a US-registered broker dealer and member of FINRA, SIPC, NFA, NYSE and other principal exchanges.
Certain countries within the European Economic Area: This document may only be distributed in the United Kingdom to eligible counterparties and professional clients and is not intended for, and should not be circulated to, retail clients (as such terms are defined in the Markets in Financial Instruments Directive 2004/39/EC (“MiFID”)). This document will have been approved for publication and distribution in the United Kingdom by BNP Paribas London Branch, a branch of BNP Paribas SA whose head office is in Paris, France. BNP Paribas SA is incorporated in France with limited liability with its registered office at 16 boulevard des Italiens, 75009 Paris. BNP Paribas London Branch (registered office: 10 Harewood Avenue, London NW1 6AA; tel: [44 20] 7595 2000; fax: [44 20] 7595 2555) is authorised by the Autorité de Contrôle Prudentiel and the Prudential Regulation Authority and subject to limited regulation by the Financial Conduct Authority and Prudential Regulation Authority. Details about the extent of our authorisation and regulation by the Prudential Regulation Authority, and regulation by the Financial Conduct Authority are available from us on request.This report has been approved for publication in France by BNP Paribas, a credit institution licensed as an investment services provider by the Autorité de Contrôle Prudentiel whose head office is 16, Boulevard des Italiens 75009 Paris, France. This report is being distributed in Germany either by BNP Paribas London Branch or by BNP Paribas Niederlassung Frankfurt am Main, regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin).
Other Jurisdictions: The distribution of this report in other jurisdictions or to residents of other jurisdictions may also be restricted by law, and persons into whose possession this report comes should inform themselves about, and observe, any such restrictions. By accepting this report you agree to be bound by the foregoing instructions. This report is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.
All research reports are disseminated and available to all clients simultaneously through our internal client websites. For all research available on a particular stock, please contact the relevant BNP Paribas research team or the author(s) of this report.
Additional Disclosures Target price history, stock price charts, valuation and risk details, and equity rating histories applicable to each company rated in this report is available in our most recently published reports available on our website: http://eqresearch.bnpparibas.com, or you can contact the analyst named on the front of this note or your BNP Paribas representative.
All share prices are as at market close on 15 January 2015 unless otherwise stated.
RECOMMENDATION STRUCTURE
Stock Ratings Stock ratings are based on absolute upside or downside, which we define as (target price* - current price) / current price. BUY (B). The upside is 10% or more. HOLD (H). The upside or downside is less than 10%. REDUCE (R). The downside is 10% or more. Unless otherwise specified, these recommendations are set with a 12-month horizon. Thus, it is possible that future price volatility may cause a temporary mismatch between upside/downside for a stock based on market price and the formal recommendation. * In most cases, the target price will equal the analyst's assessment of the current fair value of the stock. However, if the analyst doesn't think the market will reassess the stock over the specified time horizon due to a lack of events or catalysts, then the target price may differ from fair value. In most cases, therefore, our recommendation is an assessment of the mismatch between current market price and our assessment of current fair value.
Industry Recommendations Improving (é): The analyst expects the fundamental conditions of the sector to be positive over the next 12 months. Stable (previously known as Neutral) (çè): The analyst expects the fundamental conditions of the sector to be maintained over the next 12 months. Deteriorating (ê): The analyst expects the fundamental conditions of the sector to be negative over the next 12 months. Country (Strategy) Recommendations Overweight (O). Over the next 12 months, the analyst expects the market to score positively on two or more of the criteria used to determine market recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index returns relative to the market cost of equity. Neutral (N). Over the next 12 months, the analyst expects the market to score positively on one of the criteria used to determine market recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index returns relative to the market cost of equity. Underweight (U). Over the next 12 months, the analyst does not expect the market to score positively on any of the criteria used to determine market recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index returns relative to the market cost of equity.
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RATING DISTRIBUTION (as at 16 January 2015)
Total BNP Paribas coverage universe 685 Investment Banking Relationship (%)
Buy 344 Buy 9.90
Hold 252 Hold 4.80
Reduce 89 Reduce 2.20
Should you require additional information concerning this report please contact the relevant BNP Paribas research team or the author(s) of this report.
© 2015 BNP Paribas Group