China Education Group: Cutting Fair Value Estimate by 25% Following Disappointing Margin Outlook

We reduce our fair value estimate for China Education Group to HKD 7.80 from HKD 10.40 after lowering our operating margin forecasts. CEG anticipates a 10%-15% year-on-year decline in adjusted net income for fiscal 2025 (ending August) due to increased costs and expenses related to depreciation, labor, research and development, and taxation, despite projecting a 10%-15% revenue growth. The implied margin contraction exceeds our expectations. Consequently, we have lowered our fiscal 2025-29 adjusted operating margin forecasts by 7.0-9.4 percentage points, leading to a 20%-26% decline in our net income estimates. While we think CEG remains undervalued, we prefer Edvantage Group among our coverage of higher education providers for its more favorable dividend outlook with a projected 10% dividend yield for fiscal 2025.