Varsity group tries again with IPO

Health & Beauty | Kevin Xu 21 Oct 2019

Private higher education provider Shanghai Gench Education, which operates Shanghai Jian Qiao University, has filed its initial public offering application to the Hong Kong Stock Exchange again, after the previous application was labelled as lapsed.

The previous prospectus is now unavailable. However, media reports which cited the previous prospectus show that the company might have presented the wrong financial ratio in the prospectus filed at the beginning of the year.

The company says in the first prospectus, according to media reports, that its total debt-to-asset ratios were 179.4 percent in 2016, 197.7 percent in 2017 and 116.7 percent in 2018. In the latest prospectus, however, the company says total debt-to-asset ratios were all 0.4 over the past three fiscal years, and its gearing ratios, which equal total debt divided by total equity, were 179.4 percent in 2016, 197.7 percent in 2017 and 126.6 percent in 2018.

The balance sheet shows that calculation of the latest prospectus makes sense, since total debts, which represent all interest-bearing bank loans and other borrowings in Gench's prospectus, are far less than total assets, and the ratio between the two cannot be larger than 100 percent.

Gench says the gearing ratio increased in 2017 mainly due to incurring additional loans to help fund construction of a campus. The gearing ratio decreased to 119.1 percent by June 30 because of the increase in reserves.

Its peer China Xinhua Education (2779) records a gearing ratio of 7.5 percent by June 30 in the interim report.

The predecessor of the university, Private Shanghai Jian Qiao Vocational College, was established in 2000 to provide higher vocational education at junior college level. It changed its name to Shanghai Jian Qiao University in 2005 to offer undergraduate education in addition to higher vocational education.

Revenue climbed by 22.40 percent year-on-year to 356.97 million yuan (HK$395.76 million) in 2017, and increased by 18.94 percent to 424.59 million yuan in 2018.

Revenue for the six months ended June 30 increased 17.43 percent year-on-year to 254.21 million yuan. Net profit rose 2.57 times year-on-year to 46.04 million yuan in 2017, and further surged 1.36 times year-on-year to 108.58 million yuan in 2018.

Interim net profit for the six months ended June 30 was 81 million yuan, up by 61.52 percent compared with the same period last year.

Revenue from tuition fees accounted for more than 85 percent of total revenue over the past three fiscal years, and boarding fees contributed about 12 percent of total revenue, the company's prospectus shows.

Average tuition fee for each full-time student increased 11.23 percent year-on-year to 18,480 yuan in 2017 and further climbed 11.11 percent to 20,533 yuan in 2018. In addition, average tuition fees for the six months ended June 30 was 12,515 yuan, up by 9.78 percent compared with the same period last year.

Student enrollment, which excludes international students, added 9.35 percent year-on-year to 16,562 for the 2017/2018 school year, and further increased 7.52 percent to 17,808 for the 2018/2019 school year.

Gench intends to expand its school network, increase student enrollment, offer new majors and attract and retain qualified teachers. The company warns that its future acquisition may be subject to more stringent regulations.

According to the Implementing Regulations for the Law for Promoting Private Education of the PRC (Revised Draft) (Draft for Review), which was issued by the Ministry of Justice in August last year, social organizations which adopt centralized school management models are not allowed to control non-profit private schools through mergers and acquisitions, franchising or "contractual arrangements".

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