China YuHua Education: Proposal to Settle Its Convertible Bond Is Positive

We think YuHua’s proposal to settle its convertible bond with a mix of cash and new shares is a positive move to remove the default risk that has persisted for two years. The disposal of its Thailand school is also value-accretive, in our view. As a result, we raise our fair value estimate to HKD 0.89 per share from HKD 0.80. Despite YuHua being deeply undervalued, we believe the risk of share disposal by bondholders after settlement and the overhang from its for-profit school classification will remain key concerns for investors. Our preferred pick is China East Education, trading at a 37% discount to our fair value estimate, with earnings likely having bottomed in 2024.