Bright Scholar Education Holdings Limited
Q4 2020 Earnings Call Transcript

Published: 12 Nov 2020

[Operator:]

Good morning, and thank you for standing by for Bright Scholar's 2020 Fourth Fiscal Quarter and Fiscal Year 2020 Earnings Conference Call. Today's conference is being recorded. I would now like to turn the meeting over to your host for today's conference, Ms. Ruby Yim, Investor Relations Counsel.

[Ruby Yim:]

Thank you, operator. Good morning, and good evening. Welcome to Bright Scholar's fourth fiscal quarter ended August 31, 2020, earnings call. Joining me today are Mr. Jerry He, our Executive Vice Chairman; Mr. Zi Chen, our Co-Chief Executive Officer; and Ms. Dora Li, our Chief Financial Officer As a reminder, today's conference call is being broadcasted live via webcast. In addition, a replay will be available on our website following the call. By now, you should have received a copy of our press release that was distributed on November 11, 2020, after market close Eastern Time. If you have not, it is available on the IR section of our website.

[Jerry He:]

Thanks, Ruby. Thank you all for joining us today for our fourth fiscal quarter and the four year, 2020 conference call. We appreciate your interest in our company, and we look forward to sharing our results with you on this call. I would like to start call today by thanking our leadership team, academic and operational teams globally for their extraordinary efforts during fiscal 2020. These past nine months have been challenging for all of us. We have been confronted with cascading national and a global crisis, including an unprecedented pandemic and the historic significance of global recession.

[Dora Li:]

Thank you, Jerry. Let's turn back to our financials. Please be reminded that all numbers are in RMB and all comparisons refer to year-over-year comparisons unless otherwise stated. Please also refer to our earnings press release for detailed information of our comparative financial performance on a year-over-year basis. Please turn to Slide 23. Top-line results for fiscal year 2020 remain solid with the revenue up 31.3% to RMB3,366.5 million for the fiscal year. For the quarter, revenue was down 8.4% to RMB652.1 million. Domestic K-12 schools including international schools, bilingual schools and kindergartens, revenue was up 5.8% for the quarter and a 4.1 on a whole year basis. For international school, revenue for the quarter up 15% primarily due to 11% increase of students’ enrollment. On a yearly basis, revenue was up 17.2% due to 13.2% increase in students’ enrollment. Bilingual schools. Revenue for the quarter up 14% due to 10% increase in students’ enrollment. On a yearly basis, revenue up 11.1% mainly attributed to 11 point increase in students enrollment. Kindergartens. Revenue for the quarter and fiscal year was down 17.3% and the 24.6% respectively primarily due to decrease in tuition fees, meals, and boarding fees as a result of mandatory school closure. Revenue from overseas schools, the important part of a global strategy was RMB69.1 million for the quarter, down 53.4% primarily due to closure of language learning centers and the COVID-19. On a yearly basis, revenue was RMB835.9 million, grew 359.9% year-over-year and accounted for 24.8% of total group revenue. The year-over-year growth in revenue was primarily due to inclusion of the acquired overseas schools during the comparable period. Revenue from education technology segment was up 14% for the quarter and up 47.7% on a yearly basis, primarily due to inclusion of acquired online Academic Olympiad training business in the fourth quarter. Revenue from complimentary education was down 4.7% for the quarter due to pandemic impact on overseas study counselling business and the study tour camp business. On a yearly basis, revenue was up 9.1%.

[Jerry He:]

Thank you, Dora. We have a strong balance sheet to pursue organic and acquisitive growth opportunities, a terrific portfolio of assets that drives long-term growth. We are very confident that the strategic initiatives will enable us to emerge from the crisis as a stronger company that is well positioned for long-term growth and success. I would particularly like to thank all our staff for their strength and commitment during this really difficult year. And I would also like to express our gratitude to our students, parents, business partners, and investors for their ongoing trust they put in Bright Scholar. This concludes our prepared remarks. And we would like to open the call to the questions. Operator, please.

[Operator:]

We will now begin the question-and-answer session. The first question comes from Elsie Smith of Morgan Stanley. Please go ahead.

[Unidentified Analyst:]

Hello, management. I have two questions. The first one is about your F 2021 guidance. I wondered can you break down this F 2021 revenue guidance into what is the assumptions behind this guidance like how much recovery from the COVID did you assumed? And what is current recovery status of the overseas schools and the kindergartens? And the second question is on the regulation. The market today is circulating MOE letter, and I wonder, can management share what is your view on this MOE letter. Thank you.

[Dora Li:]

Hi, this is Dora. I'll answer your first question regarding the guidance. As we mentioned in the call, we still – because of the lockdown and the resurgence of the COVID – of the pandemic which heavily – due heavily impacted in our overseas business. So the current projections reflected the impact to our overseas business. On the note, if everything is back to normal, we probably will have more than – I will see the impact on our overseas business is close to RMB300 million as our best estimate during that time.

[Jerry He:]

This is Jerry. I just kind of add on to that. We've had kind of still assume the UK lockdown continue, U.S. lockdown continue. Because we already have our September numbers enrollment, which is a significant down for last year, especially for the new students. They continue continue either online or some of them are on campus. But new students, some of them differ to the January's semester. We modelled it because of the new cases in the UK is going to, I think, three or four times was in the peak of May and April, so we kind of assumed that will go over even though they differ but I don't – we assume they are probably not going come when January comes. That's very much a pessimistic view of the projection. Of course, the recent development, that’s seen from Pfizer and the other companies, we have not factored that in because while it may be too soon to be very optimistic about that. But again this is for fiscal 2021. But if vaccine becomes available to let's say most of these people who want to travel, then hopefully back in – I assume will be back in September of 2021. But that would be the next – sorry till September, fiscal of – September of 2021 would be in fiscal 2022. But for fiscal 2021 we still assume they're not going to come back. And on domestic one, some things on that because everything is back mostly back to normal, and no other students are back, all schools are open in China. So we kind of assume that that is back to pre-COVID-19, as we talked about earlier that we actually have seen student enrollment up year-over-year for the fiscal 2000 – first two months of the fiscal is over 9.9%, I believe. So that's the assumption for domestic. Domestic is back to normal. Mostly impact overseas. But we do expect that complimentary and education technology will continue to grow. And the second question is about regulation. Something that just came up this morning, and which is very different from what came out, I think, about a month ago. But today, if you are really into that is really about kind of explanation or comments from the Ministry of Education. I don't know, honestly how much debt we need carry versus the law, which we started drafting back in the summer of 2018, but still finalizing it. But it sounds like the tone was tougher last month and now is softer this month. But we still remain conservative in our expansion plan until we get a more, clear picture on that.

[Unidentified Analyst:]

Okay, thank you very much.

[Zi Chen:]

Thank you.

[Operator:]

Next question comes from Timothy Zhao of Goldman Sachs. Please go ahead.

[Timothy Zhao:]

Hi, Jerry. Hi, Dora. Thank you for the presentation. Two questions from my side. I think first of all, you mentioned in the presentation, that EdTech in the complementary education will be a key driver going forward. Just wondering how we should think about the synergies between the two new businesses, the EdTech and complementary education and your own domestic and overseas schools? Is there any potential synergies or cross sell opportunities there? A second one is about guidance, I think, you explained clearly that you are a little bit conservative in the overseas. And just to be clear, within your guidance, how much of the growth is organic versus acquisition going forward? And also, as you mentioned that you already have a couple pupil, 1,000 students in the domestic schools at the moment. Can you share some color on the new student enrollment into the international schools in China, like how do you see the international study demand, given the current situation right now? Thank you.

[Zi Chen:]

Sure. First question is about the synergy between EdTech educated services, because we are taking a very conservative view on the school regulations. So as you know, if you look at the history of our company, the school operation has produced very steady growth, cash flow. So we believe that continue to grow, but we are more concerned about opening new schools. So if you can imagine that our education, Domestic K-12 will be more focused on the quality of education also the operating efficiency. But EdTech, as we all see, that is a growth area north of education – complimentary education services, is also a gross area that are less regulated, particularly after the kind of tightening of complimentary education in end of 2018, beginning of 2019. Now, we see the opportunities actually opening more up. So we can certainly leverage the expertise in the contents from our K-12 schools, for example, the tutoring, we already have the curriculum, we already have the teachers leveraging data to our, for example, 3i Global Academy, which is an online school. Of course, we are actually exactly doing that. We can use our school teachers, leveraging the expertise, and staff and manpower for our schools to be teachers versus our online schools. So there are certainly differences between that. And more so we can leverage the teachers and the curriculum and the contents, we have our overseas school as well. But that's going to drive, I think, – so if you look at the more of the domestics that are going to be the cash cow, we see improving efficiencies in margin but the expansion is more on the tech and education services. And then in terms of the guidance that we gave, again, has been our – would have been very conservative too, from the very start of being a public company. So the guidance that we gave did not include any – or did not factor in any potential additional acquisitions. That's all organic. And also for the third question about the international schools, with the kind of U.S.-China trade, and also pandemic, we have seen some parents are hesitating whether or not they want to send the student to school overseas, for example, to our UK school, our U.S. school. Even if they want to, they can’t do that this year, because many of them can't even get a visa or clearance to go to overseas. So some of them are going – and kind of watching and see and also everybody is watching the U.S. election, hopefully it’s going to be clear who is going to be the President next month and for the next four years. So people are hesitant. So we have things on shift between – from U.S., to UK and Hong Kong. And after the pandemic and of course UK and then you can’t really go anywhere so there are more students staying in China, so going to international school in China. So that’s kind of trend we're seeing. But we believe at least that our thinking is going forward once the COVID is opening up and restriction are lifted, I think, the trend will go back to what it was.

[Timothy Zhao:]

Okay, thank you.

[Operator:]

The next question comes from Leonard Law of Lucror Analytics. Please go ahead.

[Leonard Law:]

Hi, management. I am a bond analyst. And I have three questions. The first question is I see that you have RMB1 billion of restricted cash. Can I understand what is the nature of the restricted cash? The second question is to get an understanding of management's thinking behind the 900 million short-term loans, because the company already has a lot of cash on the balance sheet. Will you be able to disclose the acquisition amount for the Linstitute and Littleton, because I think, I didn't see the numbers in the press release. That's all thank you.

[Dora Li:]

The restricted cash our balance sheet is a sort of like bank savings because we use our overseas bank – overseas cash during the time you will not have too much acquisition activities, so we save the overseas cash with the local bank and then long-term RMB within China to do some financial – principal guarantee the financial investment to earn higher returns. So that's the restricted cash, cash savings deposit with the local bank. So the second question is…

[Leonard Law:]

Short-term loan, that's the domestic loan that…

[Dora Li:]

Yes, domestic loan. The short-term…

[Leonard Law:]

[Zi Chen:]

Yes, short-term loans yes, that's right. Yes, the short-term loan is pretty much the same nature, as we mentioned, on the restricted cash.

[Jerry He:]

So basically, we borrowed the lower interest loan, but made investment in – short-term investment at a higher return. We basically make a spread on the yield, just like we have – just like the first question you asked we have overseas U.S. dollars that are earning not much. So we use the U.S. dollar to guarantee loan from domestic bank and then invest the bank to earn higher yield. The same thing with a short-term loan basically, same idea. Third question…

[Leonard Law:]

Acquisition amount.

[Zi Chen:]

Well for commercial reasons that we have not disclosed the dollar amount for the acquisition. So we're not going to disclose on the call.

[Dora Li:]

Due to some arrangement between the target and the company, so we cannot disclose that publicly on that.

[Leonard Law:]

Okay, sure, sure. I understand. That's all thank you.

[Operator:]

This concludes our question-and-answer session. I would like to turn the conference back over to Jerry He for any closing remarks.

[Jerry He:]

Thank you very much for joining the conference call. Please feel free to contact us if you have any further questions. We wish everybody a great day.

[Operator:]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.