China Education Group Earnings: Cutting Valuation on Higher Capital Expenditure; Uncertainty Weighs

We cut our fair value estimate for China Education Group to HKD 11.50 from HKD 12.10 as the planned capital expenditure exceeds our expectations. CEG’s shares are trading at less than five times forward 2024 price/earnings and at an over 9% dividend yield, but we think its share price will remain subdued before uncertainty surrounding its for-profit classification is resolved. CEG’s schools made no progress in for-profit classification in the first half of fiscal 2024.