Hailiang Education Group, Inc. (HLG) CEO Ming Wang on Q4 2019 Results - Earnings Call Transcript

Sep. 24, 2019 2:51 PM ETHailiang Education Group Inc. (HLG)
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Hailiang Education Group, Inc. (NASDAQ:HLG) Q4 2019 Earnings Conference Call September 24, 2019 9:00 AM ET

Company Participants

Ming Wang - Chairman and Chief Executive Officer

Jianguo Yu - Chief Financial Officer

Litao Qiu - Secretary

Conference Call Participants

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Hailiang Education Group's Fiscal Year 2019 Financial Results Conference Call.

During today's presentation, all parties will be in a listen-only mode. This conference has been recorded today, Tuesday, September 24, 2019.

Joining us today from Hailiang Education Group or the Company's Chairman and CEO, Mr. Ming Wang; the Company's Chief Financial Officer, Mr. Jianguo Yu; and the Company's Board Secretary, Mr. Litao Qiu.

I would like to remind our listeners who are on this call, management's prepared remarks contain Forward-Looking Statements, which are subject to risks and uncertainties and management may make additional forward-looking statements in response to your questions therefore the Company claims the protection of the Safe Harbor for forward-looking statements as contained in the Private Securities and Litigation Reform Act of 1995. Hailiang Education is under no obligation to update or alter its forward-looking statements whether as a result of new information, future events, or otherwise.

At this time, I would like to turn the call over to Mr. Ming Wang, Chairman and CEO of Hailiang Education Group. His opening remarks will be delivered in English by the translator. Mr. Wang, please go ahead.

Ming Wang

Thank you, operator and everyone for joining Hailiang Education fiscal year 2019 earnings conference call today.

We are pleased to report strong financial results for fiscal year 2019. Our revenue increased by 28.2% to RMB1.499 billion and the net profit increased by 36.8% to RMB315.8 million compared to the same period of last year, as revenue increased across both our basic education program and international program as well as our educational training services, study trip services, and education and management services. Our strong operational execution and strategical timing have helped enjoy profitability and cash flow generation to new levels.

As of June 30, 2019, we sponsored all the managed schools with an enrollment of 61,109 students. Lot of our schools were affiliated schools with 4,553 students enrolled in our international program and 18,266 students enrolled in our basic educational programs.

We have endeavored to recruit more professional teachers to reflect our current schedule, increase our rotation and to provide excellent academic performance in order to achieve top key students. We have received award in the private educations industry. We adopted our asset-light strategy to private education and management services to more students.

During the year ended June 30, 2019, we provide various education and management services to 27 private schools in Zhejiang, Hubei, Shandong, and Jiangxi Province. We have earned to our students' and their parents' trust. We will continue to enhance market leadership in the private K-12 education services industry in China. These successful expansions [indiscernible] outstanding education measurement ability and the strong potential to increase the profitability and the market penetration.

We look forward to implementing our hybrid development to attract teachers on combination of – on asset-light model and strategical accreditation to expand our affiliated and managed schools network among major metropolitan areas. We see this improving. The quality of our faculty attracted more talented students and diversify our educational service offerings in the new fiscal year. We strive to provide excellent K-12 education services to our students.

Thank you again for all your support and attention. Next I will turn the call over to Mr. Jianguo Yu, our CFO, who will summarize our fiscal year 2019 financial results.

On the behalf of management team, Mr. Yu, please go ahead.

Jianguo Yu

Thank you, Mr. Wang. Good evening everyone. Next, on behalf of management team, I will summarize some of the key financial results for the fiscal year 2019. For the fiscal year 2019, our total revenue increased by 28.2% to RMB1.499 billion or US$218.4 million in the fiscal year 2019 from RMB1.169 billion in the fiscal year 2018.

The increase in total revenue was mainly due to the increase in revenue from both our basic educational program and international program as well our educational training services, study trip services and education and management services over the period.

Revenue from basic educational programs increased by 5.4% to RMB805.7 million or US$117.4 million in the fiscal year 2019, from RMB764.2 million in the fiscal year 2018. This was primarily driven by an increase in average tuition charged in our basic educational programs.

Revenue from our international program increased by 24.7% to RMB411.3 million or US$59.9 million in the fiscal year 2019 from RMB329.8 million in the fiscal year 2018. This was mainly due to increase in the number of students enrolled in our international programs as well as increase in the average tuition charged in our international programs.

Revenue from our educational training services increased by 296.2% to RMB$144.2 million or US$21 million in the fiscal year 2019 from RMB36.4 million in the fiscal year 2018. This was mainly a consequence of the increase in the student attendance in educational training programs result from expansion of our affiliate and managed schools.

Revenue from study trip services increased by 490.6% to RMB81.5 million or US$11.9 million in the fiscal year 2019, from RMB13.8 million in the fiscal year 2018. This was mainly driven by the increase in the number of students participating in the study trips.

Revenues from education and management services increased by 115.3% to RMB40.9 million or US$6 million in the fiscal year 2019, from RMB19 million in the fiscal year 2018. This was mainly due to the increase in a number of our managed schools.

Other revenue mainly represents revenue derived from increase in overseas study consulting services and hotel management services. Revenue from others was RMB15.4 million or US$2.2 million in the fiscal year 2019.

Cost of revenue increased by 27.6% to RMB1.026 billion or US$149 million in the fiscal year 2019, from RMB804.7 million in the fiscal year 2018. The increase was primarily due to an increase in the labor costs resulting from an increase in the total number of teachers and educational staffs and a general increase in the compensation levels as well as the increase in student-related cost and transportation cost.

Gross profit increased by 29.4% to RMB472.1 million or US$68.8 million in the fiscal year 2019, from RMB364.7 million in the fiscal year 2018. The gross margins were 31.5% for the 12-month ended June 30, 2019 compared to 31.2% in the fiscal year 2018.

Selling expenses slightly increased by 2% to RMB25 million or US$3.6 million in the fiscal year 2019 from RMB24.5 million in the fiscal year 2018.

Administrative expenses increased by 14.7% to RMB72.7 million or US$10.6 million in the fiscal year 2019 from RMB63.4 million in the fiscal year 2018. This increase was primarily due to the increase in the labor costs resulting from the increase in the compensation level of our office and administrative staff.

As a result, operating expenses increased by 11.1% to RMB97.7 million or US$14.2 million in the fiscal year 2019 from RMB87.9 million in the fiscal year 2018.

Other income increased by 572.4% to RMB25.1 million or US$3.7 million in fiscal year 2019 from RMB3.7 million in the fiscal year 2018, primarily due to the increase in the government grants in the fiscal year 2019.

Net finance income increased by 118.4% to RMB24.9 million or US$3.6 million in fiscal year 2019 from RMB11.4 million in the fiscal year 2018, which was primarily due to the increase in interest income caused by more funds deposited with a related party in the 2019 fiscal year compared to the same period last year.

Net profit increased by 36.8% to RMB315.8 million or US$46 million in fiscal year 2019 from RMB230.9 million in the fiscal year 2018. Basic and diluted earnings per shares were RMB0.71 or US$0.1 in the fiscal year 2019 compared to basic and diluted earnings per share of RMB0.54 in the fiscal year 2018.

Now for a quick summary of our balance sheet and cash flows. As of June 30, 2019, we had cash and cash equivalents of RMB260.7 million or US$38 million, compared to RMB812.6 million as of June 30, 2018.

Net cash provided by operating activities was RMB690.1 million or US$100.6 million in the fiscal year 2019 compared to RMB587.9 million in the fiscal year 2018. The net cash used in the investment activities was RMB1.234 billion or US$179.8 million in fiscal year 2019, compared with net cash provided by investing activities of RMB131 million in the fiscal year 2018.

The net cash used in the financing activities was RMB7.3 million or US$1.1 million in the fiscal year 2019, compared with the net cash provided by the financing activity of RMB18.6 million in the fiscal year 2018.

Now, I’d like to turn the discussion over to the operator for any questions. Operator?

Question-and-Answer Session

Operator

We will now begin the question-and-answer session. [Operator Instructions] The first question will come from [Joyce with TI]. Please go ahead.

Unidentified Analyst

Good morning, Mr. Wang, Mr. Qiu, and Mr. Yu. Congratulations for the strong financial performance last fiscal year. Then how about the academic performance of higher education in the 2018 to 2019 school year, would you please talk more details about it? Thank you.

Litao Qiu

Okay. I'm Litao Qiu. I'm the Board Secretary. I would like to answer your question. Thank you for your question. In the 2019, our high school entrance examination, 18 of our students ranked among the top 20 students in our Zhuji City, while [475] of our students got above 685 points out of 770 points, which signifies an outstanding academic performance. In addition, one of our students received the highest score of 731 points in 2019 high school entrance examinations in our Zhuji City.

In the 2019 collage entrance examination, 1,657 students from our affiliated schools received university admission office, 410 students passed the admission cutoff of first tier university in the Gaokao college entrance examination and 184 passed the admission cutoff of first tier university in that for athlete and art students.

In the college entrance examination, one of our students from our affiliated schools scored 702 out of 750, which is the highest score in Zhuji City and this student was admitted to Tsinghua University, one of the most well-recognized and top-ranked university in China.

Another student from our affiliated schools was awarded the Gold Medal of the 35th National Physics Competition and was admitted to Peking University, another well-recognized and high-ranking university in the PRC China. Additionally, 18 students passed the high-level universities’ independent admission examination. Those universities include Tsinghua University, Peking University, Fudan University, and Zhejiang University.

In the college entrance examination for athlete and art students, one student was admitted to Beijing Sport University, and two students were admitted to China Academy of Art, both of which are top-level universities in sports and arts areas. Besides our students received the highest score in the Art Joint Examination of Zhejiang Province for color and fashion performance, and the highest score in the Art School-level Examination for music and music performance in Zhejiang Province.

In the 2019 graduate classes of our affiliated schools, 284 students in our international programs applied for overseas universities, which 283 students were received offer and 41% of these students received offers from global top 100 universities, such as Cambridge University, Imperial College London, and University College London. All of the 39 graduates of Hailiang Foreign Languages School received offers from the world’s top 100 universities.

72% of these offers were from the top 30 universities, and 26% were from global top 10 universities. Those universities include Imperial College London, University College London, The University of Edinburgh, The University of Manchester, King's College London, The University of New South Wales, The University of Queensland, University of Bristol, and The University of Warwick.

In addition, students in HSK program achieved outstanding academic performance and received admissions from top-ranked universities including Tsinghua University, Fudan University, Zhejiang University, Nanjing University, Southwest University, China Academy of Art, and Shanghai International Studies University. Thank you.

Operator

The next question will come from [Cora Black]. Please go ahead.

Unidentified Analyst

Okay. Good morning, company. Congratulations on a good [run down]. My question is related to the financial performance and what's the main driver for strong financial performance for the 2019 fiscal year?

Jianguo Yu

Thank you very much. And I’m the CFO, Jianguo Yu. I will be answering your question. Thank you very much for asking this. We have experienced significant growth in our business in the recent years. For the fiscal year of 2019, our total revenue increased by 28.2% to RMB1.499 billion compared to the same period of last year. Our gross profit increased by 29.4% to RMB472.1 million compared to the same period of last year.

Our net profit was increased by 36.8% to RMB315.8 million compared with same period of last year. This is just a brief recap from our 20-F. And I will give you a little bit more details on other source of revenues that also contributed to our strong financial performance in 2019.

Our revenue from K-12 educational services increased by 11.3% to RMB1.217 billion in fiscal year 2019, mainly driven by a combination of increase in the average tuition charged per student and student enrollment increase in our international educational programs.

In addition, we also offer a variety of international and domestic study trip services to our students and both in our managed and our affiliated schools. Our revenue from study trip services increased by 490.9% from RMB13.8 million in fiscal year 2018 to RMB81.5 million in fiscal year 2019. We also have offered educational training services included course training, academic tutoring, quality education and online education services.

Our revenue from educational training services increased by 296.2% from RMB36.4 million in fiscal year 2018 to RMB144.2 million through the fiscal year 2019. In the process of implementing our asset-light strategies, we extended our school network by providing education and management services to both private and public schools across china.

For fiscal year 2019, we provided education and management services to 27 private and public schools located in Zhejiang, Hubei, Shandong, and Jiangxi Province. Therefore, our revenue from our education and management services increased by 115.3% to RMB40.9 million in fiscal year 2019. Those are some of the reasons as to why we have a strong financial performance in the fiscal year 2019. And I hope that answers your question and thank you very much.

Operator

The next question will come from [Amanda Lu], Private Investor. Please go ahead.

Unidentified Analyst

Hello management. My name is Amanda. Congratulations to you for the Company's stable growth in business and the strong financial results. As an investor, I'm also concerned about the Company's plans for future developments. So I have a quick question for Mr. Wang. Could you please tell us more about the Company's growth strategies? Thank you.

Ming Wang

This is Chief Executive Officer, Wang Ming and I'm glad to answer your question. And I am answering this question in Chinese, and thank you very much for asking this question.

Our goal is to strengthen our leadership positions in China's private K-12 educational services, market and expand our asset-light approach by providing education and value-added services. We intended to leverage our strong market position and strengthen our brand name recognition in pursuing the following strategies.

Continue to build our brand name recognition and reputation as lead primary, middle, high school educational service providers in China. We're going to hire, train and retain outstanding school management, teacher and staff to continuously deliver high quality education services and support our school network expansion.

In order to attract and retain outstanding students for our existing and new schools to build up our market leadership by focusing on education qualities and academic performance. Pursuing opportunities of growing demand in the high-quality international education to increase enrollment in our international program and brighten our diversified program offers.

We're going to establish the strategic partnerships with the right partners including but not limited to Hailiang Group, local governments, third parties to further expedite our asset-light approach, either by providing education and management services to non-profit or for-profit schools or by sponsoring additional schools without acquiring the ownership of land and facilities in those schools.

We're going to be implementing our hybrid development strategy which combine our asset-light approach and the strategic acquisitions to promote the company's strategies to improve our brand name recognition and to explore the market opportunities and possibilities and to extend our affiliated school network across the first tier cities and the capital cities in China.

In conclusion, further developed education and management service offering to create additional values for our affiliate and managed schools and to establish our virtual platform to fuel our revenue growth. Thank you.

That is my answer to the questions. Thank you, operator.

Operator

The next question will come from [Cindy], Investor. Please go ahead.

Unidentified Analyst

Good day, management. I'm Cindy. Recent years, Chinese government has tightened controls on private schools and published series of policies on the promotion of these schools. What do you think about it? Thanks.

Ming Wang

Thank you very much for your questions. I’m Chief Executive Officer, Wang Ming, and I'm glad to answer this question. The private education services development, there's no absence of the support from the government's regulation policies.

As you know, as of September 24, 2019, the implementation of law of the People's Republic of China on promotion of privately run schools revised draft has not been officially implemented. Our company is still going to keep a very strong focus on the development of the law implementation.

Pursuit of the law of the People's Republic of China on promotion of privately run schools, law has already been implemented. The main focus of this policy revision is to regulate the operations of private schools, the classification management of the schools and to encourage the non-governmental factor to run at the management of schools.

That is my answer to the questions. Thank you very much. Operator?

Operator

[Operator Instructions] I'm seeing no further questions. I’ll turn the call back over to Mr. Yu, for any closing remarks. Please go ahead, sir.

Jianguo Yu

Thank you, operator. On behalf of our entire management team, I would like to thank you everyone again for joining us today for our conference call. If you have any question, please contact us through the e-mail at ir@hailiangeducation.com or reach our IR counsel Ascent Investor Relations at tina.xiao@ascent-ir.com. Management will respond to your questions as soon as possible. We appreciate your interest and support in Hailiang Education and looking forward to speaking with you again next time. Operator, please go ahead. Thank you.

Operator

Thank you, everyone, again for attending the Hailiang Education Group's fiscal year 2019 earnings conference call. This concludes our call today and we thank you all for listening in. Good-bye.

Ming Wang

Thank you.

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