06/18
2020
An established player in a growing niche & potentially more; initiate at Buy, add to CL
Publisher：Goldman SachsBrowse：
Offcn Education is a unique company - positively exposed to the rising civil servant training market, having reached a largely dominant market share at 25% (next players at <7% mkt share) and with the optionality to deploy their strategy focused on product and branding, in new segments. Offcn focuses on providing training for civil servant admission - a market that we expect will more than double by 2025E to US$8bn, as China’s understaffed public service system is a key source of job access, and graduates choose that job path for higher benefits and social status. Driven by its strong brand recognition, R&D/product design that yields higher exam passing rates, and the tripling of its in-depth sales network scale by 2025, we forecast Offcn to reach a market share of 40%+ in 2025E. We initiate at Buy and add it to our CL with a 12m TP of Rmb36.38 implying 27% upside.
We like its superior and sustainable capital return: We expect Offcn to sustain 60%+ ROE in the next few years based on its strong bargaining power, asset light business model, high and stable margin as well as strong free cash flow generation. We also believe we are potentially at the beginning of a long-term expansion into new segments in vocational education, given its strong past track record and the large market size.
We expect a 33% EPS CAGR in 2019-25E and see 2H20E revenue growth at 50%+ as a potential catalyst. We are up to 4% ahead of 2020-22E consensus EPS likely on operating leverage and new business expansion. To capture its longer-term growth, we value the stock on 30X 2025E EPS discounted back to 2021E with 7.5% COE. While its near term PE of 70x 20E looks high, we believe Offcn’s competitive advantage can sustain long-term growth. Risks include uncertainties in education policy; intensifying competition; inability to run live classes in the event of further COVID-19 outbreaks.
Accessory：An established player in a growing niche & potentially more; initiate at Buy, add to CL
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