Central China education group YuHua to launch HK$1.9b IPO

PUBLISHED : Wednesday, 15 February, 2017, 9:00pm
UPDATED : Wednesday, 15 February, 2017, 11:01pm

Chinese private school operator YuHua Education is to launch an up to HK$1.9 billion initial public offering (IPO) in Hong Kong in February.

YuHua, which runs one university and two dozen K-12 schools (from kindergarten to high school) in the populous Henan province, is the latest education provider seeking capital in Hong Kong to fund its expansion at home.

The company is offering 75 million shares in Hong Kong, 10 per cent of its global offerings, at an indicative price range of HK$1.98 to HK$2.54.

The IPO is slated to be priced Tuesday, and the company hopes to begin trading on February 28.

YuHua has a market share of about 0.11 per cent in the fragmented private education sector with 48,220 students enrolled in the previous school year, according to its prospectus.

With all income derived from tuition fees, the company recorded a net profit margin of 39.9 per cent for the 2015 to 2016 school year.

The company plans to use 30 per cent of the funds raised to establish new schools in Henan and “other attractive markets”, while 28 per cent will be used in acquiring existing K-12 schools and universities.

Private schools and tutoring institutions have mushroomed in China as state schools no longer satisfy the growing demand for quality education among China’s middle class.

With the government showing support for the sector, those listed in Hong Kong have received a largely warm welcome from investors.

China Maple Leaf Educational Systems, the first mainland education company listed in Hong Kong, climbed 84 per cent since its 2014 IPO to close at HK$5.30 on Wednesday. Virscend Education, which owns private schools in Chengdu, has risen 97 per cent since its 2016 IPO. The company’s shares closed at HK$4.72 on Wednesday.

Guangdong-based Wisdom Education raised a HK$796 million in its Hong Kong IPO in January. Since listing its shares have risen 4.1 per cent and are now trading at HK$1.77.

Hong Kong remains an attractive listing destination for mainland education providers.

Minsheng Education Group Company and China New University Group, which operate private schools in southwestern China, are seeking to debut share listings in Hong Kong.

Albert Yip, analyst at GF Securities, said compared with international schools, private schools offering domestic curriculums are more affordable to residents in central and western China.

“People all around China are demanding better education,” Yip said. “And the competition is less intense in smaller cities.”

YuHua’s university charged an average 11,752 yuan per student in the 2015 to 2016 school year, while its kindergartens and grade schools charged 18,501 yuan and 21,361 yuan respectively per year.

The company has been raising the K-12 tuition rates by 5 to 10 per cent annually, and it looks to adjust its college tuition rates every three to four years.

“We have low admission rates and high tuition compared to our peers,” said Li Hua, 29, chief executive officer of YuHua and the daughter of its chairman Li Guangyu.

“It shows we are able to attract good students to study at our schools.”

CITIC CLSA, the Hong Kong investment banking unit of CITIC Securities, is the sole sponsor of the offering, according to the pre-listing filing.

BOCOM Investment has committed to purchase US$50 million worth of shares as the cornerstone investor.