YuHua Reaches Agreement on Convertible Bonds, Paving Path to Trading Resumption

We lower our Morningstar Uncertainty Rating on China YuHua to Very High from Extreme to reflect better visibility after the company obtained a waiver from convertible bond holders on its early redemption obligation. This should clear the way for YuHua to publish its full-year 2022 results and resume trading in its shares. While we think investor confidence will remain dampened on governance concerns and YuHua is likely to trade at a discount to peers such as China Education Group, it is worth noting that the share prices of the higher education names under our coverage have jumped more than 50% since YuHua ceased trading. This could help propel YuHua’s share price up. YuHua’s 2022 annual results should be available soon since the delay was solely due to auditor’s concerns over YuHua’s ability to fully redeem its convertible bonds at the end of 2022. We leave our weighted average cost of capital at 15% and fair value estimate at HKD 2.32 pending more information from its 2022 annual report.