China New Higher Education's Preliminary For-Profit School Approval a Boost to Investor Confidence

Based on our channel check, Harbin Huade University, a higher education school under China New Higher Education, or CNHE, has received preliminary approval to be classified as a for-profit school. Besides Harbin Huade, two other private higher education schools in the same province also received preliminary approval. We believe this marks a positive step forward for regulations in the education sector and the market should react positively. The uncertain legal status of the higher education schools after imposition of nonprofit status on the compulsory education schools and K-9 academic after-school tutoring service providers has been a risk to the sector. We believe the approval sends a clear policy signal and should reduce the regulatory overhang. CNHE’s shares are trading at a 52% discount to our HKD 5.30 fair value estimate due to negative sentiment. We think the approval should boost investor confidence. As the successful for-profit classification has been our base case assumption, the approval does not change our estimates. We keep our forecast for revenue and net profit to grow at 12.3% and 9.7% CAGR from 2022 to 2026, respectively.