Hailiang Education Group Inc.
Q1 2021 Earnings Call Transcript

Published: 1 Dec 2020

[Operator:]

Good day, ladies and gentlemen. Thank you for standing by. And welcome to the Hailiang Education Group's First Quarter of the Fiscal Year 2021 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. This conference has been recorded today, Tuesday, December 1, 2020. Joining us today from Hailiang Education Group are the company's Chairman and CEO, Mr. Junwei Chen; the Company's Vice President, Mr. Ping Huang; 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. Junwei Chen, the Company’s Chairman and CEO. Mr. Chen, please go ahead.

[Junwei Chen:]

Thank you, operator and everyone for joining Hailiang Education Group’s first quarter of fiscal year 2021 earnings conference call today. Starting for this fiscal year, the company will resume the release of quarterly reports, hoping to gradually improve the transparency of the company, fully protect the rights and interests of investors and keep more investors updated with the company's latest development and the competitive advantages. I'm very pleased to announce that Hailiang Education with its strong brand image, excellent education quality and our continued progress in executing and innovating our growth strategy still achieved outstanding results in the first quarter of fiscal year 2021, reducing the temporary disruptions and the short term impact on our business by the COVID-19 pandemic. In our first quarter of fiscal year 2021, we recorded revenue of RMB298.5 million or U.S.$44 million, up 29.8% year-on-year. We generated the RMB263.1 million or U.S.$38.8 million from primary, middle and high school educational services up 36.1% year-on-year. The net profit attributable to the company's shareholders was RMB26.9 million, or U.S.$4 million compared with a net loss of RMB50.3 million for the same period last year. The net profit attributable to the company’s shareholders margin was 9% compared with a net loss attributable to the company’s shareholders margin was 6.7% for the same period last year, demonstrating Hailiang Education’s significant profitability. Thank you for your continued support to the company. Next, I will turn the call over to Ping Huang, our Vice President who will summarize our first quarter of fiscal year 2021 business operation results on behalf of the management team. Ping Huang, please go ahead.

[Ping Huang:]

Thank you Dr. Chen. And good morning everyone. On behalf of the management team, I will start with a summary of first quarter of fiscal year 2021 operations and the several key initiatives for this quarter. The first quarter of fiscal year 2021 was the critical period for enrollment of new staff students. As of September 30, 2020 our school network has expanded to 42 schools, 13 of which were affiliated to schools that we sponsored, and 29 of which were managed schools that we provided the education and management services to. The aggregate number of students enrolled in our affiliated schools was 26,869 up approximately 10.8% year-on-year. The aggregate number of students enrolled in both our affiliated and managed schools was 72,846 up approximately 9.5% year-on-year.

[Jianguo Yu:]

Thank you, Andrew. And good morning, everyone. Next, on behalf of the management team, I would like to summarize some of the key financial results in the first quarter of fiscal year 2021. For the first quarter of fiscal year 2021, our revenue was RMB298.5 million orU.S.$44 million increased by 29.8% from RMB229.9 million our gross profit was RMB44.5 million or U.S.$6.6 million compared with a gross loss of RMB3.5 million. Our net profit was RMB25.5 million or U.S.$3.7million compared with a net loss of RMB19.4 million. Our gross profit margin was 14.9%. Our net profit margin was 8.5% compared with the gross loss margin of 1.5% and net loss margin of 8.4% respectively for the same period last year. Our net profit attributable to company's shareholder was RMB26.9 million or U.S.$4 million, compared with a net loss compared to company's shareholder of RMB15.3 million. Basic and net diluted earnings per share were RMB0.07 or U.S. $0.01 compared to basic and diluted loss per share of points or RMB0.04 for the same period of last year. Our revenue is mainly derived from primary, middle and the high school educational services, educational training services, study trip services and education management services. Revenue from primary and middle and high school basic education program was RMB179.4 million or U.S$26.4 million a increase of 33.9% from RMB134 million for the same period of last year. Revenue from primary, middle and high school international program was at RMB83.7 million or U.S.$12.3 million, an increase of 41.1% from RMB59.3 million for the same period of last year. The increase was mainly due to the increase in the number of students enrolled and increase in the average tuition charged in both programs. Besides, as the 2019/2020 school year extended from June of 2020 to July 2020 due to the impact of COVID-19, the deferred revenue as of June 30, 2020 was recognized as revenue in the first quarter of fiscal year 2021. Revenues from educational training services was RMB19.8 million or U.S.$2.9 million a increase of 120% from RMB9 million for the same period of last year mainly due to the great expansion of online educational training business in the summer of fiscal year 2021. Revenue from study trip services of RMB1.8 million or US$0.3million, a decrease of 91.5% from RMB21.1 million from the same period of last year, mainly due to the restriction on travel because of COVID-19 which affected study trip services in the first quarter of fiscal year 2021.

[Operator:]

. Our first question comes from Liu Wie a Private Investor. Please go ahead.

[Unidentified Analyst:]

[Unidentified Company Representative:]

[Unidentified Analyst:]

Operator, I have no further questions. Thank you.

[Operator:]

Thank you. Our next question comes from Fiona Shin . Please go ahead.

[Unidentified Analyst:]

Good morning management. This is Fiona Sharon, . First, congratulations for maintaining the strong growth financial performance for the first quarter. I have a quick question for company's chief financial officer Thomas. Could you please tell us more about the ratio of the great improvement in financial results? Thanks.

[Thomas Yu:]

Thank you for the question, Fiona. Let me answer. Our revenue increased by 29.8% from the same period of last year mainly due to the steady growth of our revenue from primary middle and high school educational services resulting from an increase in the number of students enrolled and increasing the average tuition charged and impact on the deferred revenue recognized mentioned before. Besides, we have achieved a great expansion of our online education training business in the summer of fiscal year 2021. Our gross profit margin was 14.9% for the first quarter of fiscal year 2021 compared with gross loss margin of 1.5% for the same period of last year. The growth was mainly due to the profitability of primary, middle and high school education services improved and the proportion of study trip services with the low gross margin decline due to the impact in the COVID-19. Thank you for your question.

[Unidentified Analyst:]

Thank you,

[Thomas Yu:]

Operator?

[Operator:]

Our next question comes from Bello Huang a private investor. Please go ahead.

[Unidentified Analyst:]

Okay, thank you, operator. Good morning management. First, congratulations on your company's remarkable results. However, I have noticed that the revenue of study trips has decreased to zero . So I want to know if the company has any measures to improve this business. Thank you.

[Litao Qiu:]

Okay, well, I would like to answer this question. This is Litao Qiu, the Board Secretary. Our revenue from study trip services does not have a certain percentage of decline. It was mainly due to the restriction of the travels because of COVID-19 which affects the study trip services in our fiscal year 2021. But from the perspective of the operation of study trip services, we did take some measures to improve the situation under the pandemic. We are actively seeking changes, for example, starting from the weekend parents child-trip setting an online sales channels and gradually expanding the end customer with a high quality study trip products and services, especially the weekend parent child-trip has launched eight times, and had been highly recognized by the student parents. So meanwhile, aiming at the strategic development of the education camp for study trip services would have consolidate the resources of the company through established educational camp-based such as Hailiang Zhenjiang study trip camp-based and there are other educational camp-based that are exploring cooperation and development. In addition, we also reach a strategic cooperation with the Tourism Institute of Zhejiang. Recently, we jointly campus practical training and research base, school enterprise cooperative development costs, and other cooperation methods, combining the resource of the school enterprise parties to reach consensus of supply and demand. During this pandemic period of keeping a low profile, we will layout a solid foundation for the high quality talent required for the layout of our study trip services. Thank you. Okay. Thank you for question.

[Operator:]

Our next question comes from Ashley Investment. Please go ahead.

[Unidentified Analyst:]

Thank you, operator. Good morning management. I'm glad to communicate with you at this earnings conference call. I'm more concerned about the enrollment, profitability of the newly added affiliated schools in this new school year. Could you please give us a brief introduction? Thank you.

[Ping Huang:]

Thank you for your question. It's Andrew here. And I will take this question. Our enrollment performance is relatively good in the new school year. As of September 30, 2020, our affiliated schools enrolled about 27,000 students, an increased by about 11% year-over-year. And the total student enrollment of about 73,000 in our affiliated and managed schools are up by approximately 9.5% year-on-year. In addition, we added the three affiliated schools to our school network, namely Lanzhou Hailiang, Hailiang Hangzhou, Wuhu Hailiang, all of which studied their first year of enrollment for the 2020 to 2021 semester year in the first quarter of fiscal year 2021. As of September 30, 2020, the addition -- the students enrolled in these schools were 568, 828, and 409 respectively. The new enrollments in these three schools have far exceeded our expectations. The company also acquired the Jinhua Hailiang Foreign Language School and completed the transfer of sponsorship in September 2020. As of September 30, 2020, about 739 students enrolled in Jinhua Hailiang Foreign Language, which is an increase of 164 students comparing the same period of last year. The increase in the number of students enrolled in our schools proved that this company's effective response measures during the COVID-19 pandemics have been recognized by the public. And the company has successfully seized the development opportunity brought by the negative impact of the COVID-19 pandemic on the education industry in the public's philosophy of education. These four schools are expected to generate a revenue of about RMB100 million in the upcoming fiscal year. At the same time, above mentioned four new schools have also enlarged our total capacity from 25,000 to about 32,000, representing a total capacity increase of about 26%. With current enrollments of 27,000 students in our affiliated schools, we still have approximately over 4,600 vacancies to provide sustainable revenue growth. That's my response to your question. Thank you.

[Unidentified Analyst:]

Thank you.

[Operator:]

Thank you. Our next question comes from Adam Chang, Private Investor. Please go ahead.

[Unidentified Analyst:]

Hello, managements. My name is Adam. Congratulations. I'm a individual investor to ask the question. So we have noticed that the increase in the educational service revenue was in part due to the recognition of the deferred revenue of the last fiscal year considering the impact of the COVID-19. So, how is the increase of the revenue and average tuition regardless of the impact of the pandemic? Thank you.

[Jianguo Yu:]

I am the CFO. Let me answer this question. The revenue of RMB36.4 million has been deferred for the first quarter of fiscal year 2021 due to the pandemic of COVID-19. Strip the impact out our revenue from primary, middle and the high school educational services was increased by 17%. And the annual tuition fees increased by 11.2%, compared to the same period of last year. And I hope that answers your question. Operator.

[Operator:]

Our next question comes from Michelle Irwin from Univest Securities. Please go ahead.

[Michelle Irwin:]

Hi. Michelle Irwin, Universe Securities. Firstly, I have few questions. So first one is, are there updates on the international platforms with COVID-19 circulating the globe?

[Junwei Chen:]

Sorry, I beg your pardon. Could you repeat the question, please?

[Michelle Irwin:]

Sure. Are there any updates on the international growth platforms with COVID-19 circulating the globe?

[Junwei Chen:]

Okay. So you were referring to our responses to COVID-19 about our international program, right?

[Michelle Irwin:]

Yes.

[Junwei Chen:]

Okay. To answer your question, I think that we have been successfully responded to the change of overall circumstances under the COVID-19 and the latest changes of the international politics. Though, the overall students enrolled under international programs in whole country had some fluctuation in the past few months. But for Hailiang, we still achieved a very good or positive outcomes during the students recruiting process in the past quarter. As a result of that, now, we have about 5,200 students enrolled in our international programs, which is slightly better than our previous expectation. The main reason behind that is Hailiang's successful promotion of our international programs across the regions that we have presence in. And also, it is a result of Hailiang's, like approved academic results among our -- among the parents of our students, which -- who still had confidence of Hailiang and decided to continue to send their children to our schools for international programs. Yes. Hopefully that can address your question.

[Michelle Irwin:]

Okay. And with the start of the new semester, other than to be any changes moving forward throughout the school year?

[Junwei Chen:]

Sorry, the reception is still a bit weak. Can you repeat your question?

[Michelle Irwin:]

With the start of the new school semester is it going to be any changes looking forward throughout the school year?

[Junwei Chen:]

No. For the upcoming semester. I -- we didn't foresee any significant changes of the enrollment of our students on the international programs.

[Michelle Irwin:]

Also on the regular domestic programs?

[Junwei Chen:]

Sorry, can you speak really loudly and clear? It's not -- it’s a bit vague here.

[Michelle Irwin:]

Are there any changes for the domestic programs at all not just the international?

[Junwei Chen:]

No. We didn't see any changes in the mix between domestic programs versus the international programs.

[Michelle Irwin:]

I also saw that there is some . Has that increase the awareness of Hailiang on international level?

[Junwei Chen:]

Well, we have established some strong relationship with our partners outside China, namely in U.S., Canada, Australia and UK. In the past few years, we have continued to send excellent graduates from our school networks to these countries. So among the international -- among the universities, in these countries, I think Hailiang's academic results and the brand has been well recognized. And on top of that, in the past couple of years, Hailiang has recruited more than 200 international students from oversea countries to study in our international student’s school with the purpose of sending these students to Chinese universities. And in the past academic year, some of them have been admitted to like top universities in China, for example, like Peking University. So, we believe that from both directions Hailiang's brand has been recognized by both Chinese parents as well as parents from some overseas countries.

[Michelle Irwin:]

Thank you.

[Junwei Chen:]

Thank you for your questions.

[Operator:]

Our next question comes from Ivy Wang, Univest Securities. Please go ahead.

[Ivy Wang:]

Thank you. This is Ivy from Univest. Thank you and congratulations on your performance for the last quarter. I have several questions. The first one is about our online educational platform, Mingyou online. So could you tell me how will does this online platform support? And in more detailed on how well it compete with other more established online learning platforms? Thank you.

[Ping Huang:]

Okay. Thanks for your question regarding the Mingyou. I believe a large portion of this question has already been covered by Dr. Chen. But unfortunately, that question was delivered in Chinese. But I can recap some of his responses to this question. Yes. In the past quarter Mingyou, our educational training brand has delivered very successful performance and had a very good contribution to the overall financial performance in the last quarter. It actually continued to deliver strong performance in its three offline training centers by providing services to more than 20,000 students. And on top of that, we have launched our online training platform during the summer of 2020. And in the past four and a half months, since July, this online platform has successfully provided the services to students of over 28,000. So as a result of that, we believe that the start of Mingyou has been very well under expectation. And we expected that Mingyou will continue to grow in the upcoming year and form a important part of our overall performance in fiscal year 2021. And regarding your second part of the question, to compare Mingyou against the other like leading online education platforms, I believe that we have very different business models. First, we actually started our business based on the offline K-12 schools, meaning that, we have already established a very good brand in the regions that our school network has already has presence in. As a result of that, we don't have to spend a significant portion of our revenue in customer procurement, meaning that, our sales and marketing expenses has been relatively low compared to these companies. In our first quarter, though these online training services -- these are online training platform is very new, but the customer acquisition cost is only roughly 15% of the total revenue, much lower than many of our competitors. The second point I want to say is that, our K-12 schools are mostly located in the third or fourth tier cities, where the market is still pretty new for all of these training -- online training platforms. So they haven't spent much resources in these regions, meaning that, we still have a like first to move advantages in these regions. The third point I want to mention is that for the current like K-12 online training business, I believe that the services that the parents are demanding is pretty like different across different regions. The parents are expecting the online training platforms to give their children a kind of like, specially designed or tailor made, like services, which is particularly suitable to the local educational system, or the local like high school entrance exams. This is something that the national online education platforms doesn't have. And the fourth point I would mention is the school -- the students -- sorry, the teachers resources. In the lower tier cities in China, the good teachers -- the good and reputable teachers are mostly teachers that have connections or working in the K-12 schools, instead of these, like full-time online training platform employees. So we have the advantages of having the best teachers to teach our students to provide these training services in our online market. So these are the various like competitive strengths that I can think of. And as a result of that, though, this part of business is pretty new to the company, but in the first quarter that has just passed. These platforms have already breakeven in terms of the -- on the P&L side, which is also very unique among our peers. Yes. That's my question to the Mingyou business.

[Ivy Wang:]

Yes. Thank you for the detailed explanation. We will look forward to the development. And my other question about Mingyou is that since the audience are just licensed from --licensed in from primary schools. So what merit are placed to make sure our teaching quality? Thank you.

[Junwei Chen:]

Sorry, can you can you repeat your question? I missed the last part of your question.

[Ivy Wang:]

Sorry. So since the audience are licensed. So what kind of merit is placed to make sure our teaching quality? Thank you.

[Junwei Chen:]

Okay. So, for our Mingyou services, we actually had several measures to ensure that we had the standardized and excellent quality of such training services. For example, we had hired the best teachers in the local region. Some of the teachers were ex employees of our K-12 schools, who are very familiar with the local education and examination systems. The second point is that, we had actually organized the training service to a very specialized and tailor made way. We had a small size of the class to provide, like high quality services to the students. The class size is typically around 20 to 30. And we have about two teachers for each of these classes. So that's every children are well taken care of. These are just the two examples of the measures that we have been taken to ensure the quality of these trading services.

[Ivy Wang:]

Yes. Okay. Thank you for all your answers. And that's all my question. Thank you.

[Operator:]

Seeing no further questions let me turn the call over to Mr. Litao Qiu, the Company's Board Secretary for closing remarks.

[Litao Qiu:]

Okay. On behalf of entire management team, I'd like to thank you everyone again for joining us today for our conference call. Additionally, I'd like to remind you that certain statements by Hailiang management during these meetings be considered forward-looking statements which are made under the Safe Harbor provisions of U.S. Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts in these announcements are forward-looking statements including but not limited to the following; general economic conditions in China, competition in the education industry in China, the expected growth of the Chinese private education market, Chinese governmental policies relating to private educational services and providers of such services, health epidemics and other outbreaks in China, the Company's business plans, the Company's future business development, results of operations, and financial condition, expected changes in the Company's revenue and certain cost or expense items, its ability to raise additional funding, its ability to maintain and grow its business, variability of operating results, its ability to maintain and enhance its brand, its development and introduction of new products and services, the number of students entrusted by schools, the successful integration of acquired companies, technologies and assets into its portfolio of software and services, marketing and other business development initiatives, dependence on key personnel, the ability to attract, hire, and retain personnel who possess the technical skills and experience necessary to meet the requirements of its clients, and its ability to protect its intellectual property, the outcome of outgoing, or any future, litigation or arbitration, including those relating to copyright and other intellectual property rights, and other risks detailed in the Company's filings with the U.S. Securities and Exchange Commission. Hailiang Education may also make written or oral forward-looking statements in its periodic reports to the SEC, in its annual report to shareholders, in press releases and other written materials, and in oral statements made by its officers, directors, or employees to third parties. Statements that are not historical facts, including statements about Hailiang Education's beliefs and expectations are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties, whether known or unknown, and are based on current expectations and projections about future events and financial trends that the Company believes may affect its financial condition, results of operations, business strategy, and financial needs. Investors can identify those forward-looking statements by words or phrases such as may, will, will make, will be, expect, anticipate, aim, estimate, intend, plan, believe, potential, continue, endeavor to, is/are likely to, or other similar expressions. Further information regarding those and other risks is included in our annual report on Form 20-F and other filings with the SEC. All information provided in this press release is as of the date of this press release, and Hailiang Education undertakes no obligation to update any forward-looking statements, except as may be required under applicable law. If you have any questions, please contact us through email at [e-mail] or reach us on our IR Consult Ascent Investor Relations at [e-mail]. Management will respond to your questions as soon as possible. We appreciate your interest and support in Hailiang Education and look forward to speaking with you again next time. Operator, please go ahead. Thank you.

[Operator:]

Thank you again for attending the Hailiang Education Groups first quarter fiscal year 2021 earnings conference call. This concludes our call for today and we thank you all for listening in. Goodbye.