Edvantage Earnings: Strong Revenue Growth Offset by Higher Administrative Expense

Edvantage’s fiscal 2024 first-half result was slightly disappointing. Despite 19% revenue growth, the administrative expense ratio rose 3.7 percentage points year on year to 19.6%, resulting in slower net profit growth of 13%. After raising our administrative expense assumptions, we reduce our net income estimate by 2%-6% for fiscal 2024-28. We maintain our HKD 6.10 fair value estimate and narrow moat rating. Trading at 4 times fiscal 2024 price/earnings and only 40% of our fair value estimate, the shares appear undervalued to us, but we believe near-term share price performance could be capped due to policy uncertainty surrounding for-profit classification. Although the process has stalled for over a year, our base case assumes that for-profit classification will be allowed. We anticipate substantial upside with any positive development in the classification process.