Xinhua Education looks to extend sector's IPO success

Auhui-based university and secondary school operator poised to continue strong run of Chinese education IPOs as it kicks off its own deal to raise $188 million.

China Xinhua Education is set to become the seventh mainland private school operator to list in Hong Kong, as the Hefei-headquartered company started bookbuilding for an initial public offering to raise as much as HK$1.5 billion ($188 million) on Monday.

While reviving a streak of Chinese education IPOs from early last year, Xinhua Education will also enjoy first mover advantage over a number of school operators that are expected to list later this year.

Besides Xinhua, five education companies have already applied to list in Hong Kong. They are China 21st Century Education, China Chunlai Education, Tianli Education, Bojun Education and Top Education.

These companies are listing on the back of the sector’s bullish run after the State Council passed legislation in November 2016 to allow profit-seeking private schools. Before that, all private schools were categorised as non-profit organisations.

The new law not only simplified the legal procedures for private education companies to list on stock markets, but also gives them full autonomy in setting tuition fees.

Shares of Hong Kong-listed education firms like Maple Leaf and Yuhua Education have risen at least 87% over the past 12 months. Wisdom Education, the best performer, gained 222% from a year earlier.

It is worth noting that all six listed education companies are trading higher than their respective listing price.

VOCATIONAL TRAINING

Xinhua Education, which operates a university and a secondary school in Hefei, Anhui province, is selling 400 million shares for HK$2.83 to HK$3.69 per share. There is a standard 15% upsize option and the company will have a 25% free float on a pre-greenshoe basis.

One source familiar with the situation said Xinhua would be valued at 14.7 to 19.1 times estimated 2018 earnings pre-shoe and 15.2 to 19.9 times post-shoe.

Such an implied valuation suggests Xinhua is pushing for a slightly aggressive price compared to the likes of Yuhua, Minsheng Education and China New Higher Education. At the time of their respective IPOs last year, they were all struck at around 13 times price-to-earnings on a rolling 12-month basis.

Yet, most of these companies are trading above 20 times P/E after the strong uptick in share prices last year, implying that Xinhua will be valued slightly cheaper even at the top end of the valuation guidance.

In its marketing materials, Xinhua said it stood out from other schools because it collaborated with enterprise partners to design curriculums that offer practical training for its pupils.

In February last year, Xinhua Education entered into strategic partnership with Baidu’s finance unit to offer practical training in fintech and big data applications.

For its IPO, Xinhua Education has secured two cornerstone investors with total investment of $20 million. China New City Commercial Development and BOCOM International Prosperity Investment will invest $10 million each, according to the source.

The company’s management roadshow and IPO bookbuild will run until March 19, with listing slated for March 26.

Macquarie is the sole sponsor of Xinhua Education’s IPO.

¬ Haymarket Media Limited. All rights reserved.