Enrollments grow at school operator

money-glitz | Stella Zhai 3 Aug 2020

Leader Education, a mainland higher education service provider, is seeking to list in Hong Kong to raise up to HK$433 million, at a time when mainland regulators are calling for an increase in higher education enrollment and facilitating graduate employment after the coronavirus pandemic.

The company, scheduled to debut on Thursday, is around 27 times oversubscribed in its retail tranche, local media reported. Huatai Financial Holdings (Hong Kong) acts as the sole sponsor.

The Heilongjiang-based company ranked eighth among all private formal higher education service providers in the province in terms of full-time student enrollment in the 2018/2019 school year, with a market share of about 7.5 percent, according to a commissioned Frost & Sullivan report.

Leader Education operates only one school, Heilongjiang College of Business and Technology in Harbin city, a degree-granting private university that mainly offers undergraduate programs.

The company operates the school on two campuses, Songbei Campus and a new Hanan Campus, with a total gross floor area of 308,694 square meters, ranking the third among its peers in Heilongjiang. The total number of students of the school grew from 7,550 in 2016/2017 to 8,818 in 2019/2020 school year, a compound annual growth rate of 5.3 percent.

Leader Education is expected to be the smallest school operator among mainland peers listed in Hong Kong, compared with 10,200 students of China Gingko Education (1851) during the 2019/2020 school year, currently the least.

According to the F&S report, the initial employment rate of graduates of its undergraduate program increased from 78.7 percent in the 2016/2017 school year to 90.9 percent in 2018/2019, with the company ranking moving from sixth to fourth among its peers in Heilongjiang.

The school's average tuition fees went up by 17.9 percent to 15,492 yuan (HK$17,166.75) in three years ended August, 2019.

Revenue for the six months ended February grew 16.1 percent year-on-year to 89.1 million yuan, while net profit slumped by 30 percent to 29 million yuan, given a 1.47 million yuan loss from the company's discontinued operations, which mainly involved developing and selling residential properties in Harbin, the company says in the prospectus.

Since 2017, private higher education schools in Heilongjiang were no longer subject to government approval when they adjust the tuition fees and boarding fees. While the company did not raise the fees for the 2019/2020 school year, it says it may raise them for the 2020/2021 school year.

The number of student enrollment in private higher education in China is predicted to grow by 5.7 percent from 2019 to 7.3 million in 2020, and that of Heilongjiang is projected to rise 2 percent to 119,600 this year, according to the F&S report. And the total revenue of the industry in Heilongjiang is expected to grow 8.7 percent to 2.5 billion yuan in 2020, after fully taking into account the impact of the virus.

Despite nearly a half-year halt of its offline classes, the company expects the pandemic will not significantly impact its results for the school year ending August 31, 2020, as it has collected fees in advance, and it will not refund tuition fees as it has been offering online services.

However, the company is required to refund a portion of the boarding fees totaling up to 5 million yuan due to the pandemic, which has been recognized as contract liabilities as of February 29. The loss could continue if students still cannot return in the 2020/2021 school year.

The company also warns the student recruitment progress may be adversely affected if the virus pandemic continues, which could impact its financial performance in the coming school year.

It intends to use the net proceeds to expand the second phase of Hanan Campus and to repay borrowings of US$12 million (HK$93.6 million) from Huatai Principal Investment, as well as 83 million yuan from other financial institutions. It also plans to use the funds for possible acquisitions and other general corporate purposes.

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