China Education Group Earnings: Disappointing Large Impairments Made on Acquisitions

While we are disappointed with China Education Group’s, or CEG’s, significant impairments, we maintain our fair value estimate of HKD 11.50 as noncash losses do not affect our discounted cash flow-based valuation. CEG's shares are currently trading at a substantial 60% discount to our fair value estimate, but we anticipate a negative share price reaction to the news. We have reduced our net profit forecast for fiscal 2024 to CNY 507 million to account for the CNY 1.680 billion-CNY 1.750 billion post-tax impairment, while keeping our estimates for fiscal 2025-28 unchanged. We will provide a further update after CEG releases its full results at the end of November.