China New Higher Education Earnings: Shift to Share Dividends Is Disappointing, but Selloff Overdone

While we are disappointed with China New Higher Education’s shift to issuing a share dividend instead of paying out cash, we believe the 51% decline in share price is excessive. CNHE’s financial health has improved year over year, and its operating performance remains solid, despite some margin contraction due to increased investments for high-quality education. We reduce our fair value estimate by 6% to HKD 5 per share, assuming lower gross margins, but we believe the selloff presents a good buying opportunity, with shares trading at only a 1.7 times price/earnings multiple.