Initiating on Edvantage, the Greater Bay’s Largest Business-Major Education Provider; FVE HKD 5.85

We are initiating coverage on Edvantage Group with a DCF-based HKD 5.85 fair value, implying 17.2 times forecast 2020 price/earnings ratio, and with a narrow moat rating, compared with its peer average of 14 times price/earnings. We believe Edvantage Group can trade above its industry peers’ average, on its solid profitability and leading position in the Greater Bay Area in China, and an estimated 2020 solid ROE of 17.6%. In addition, we believe that favorable government policy for the Greater Bay Area should continue to support Edvantage Group’s future growth. Thus, even without near-term M&A growth, we believe that the organic growth with additional new campus capacity built in Sihui, Guangdong, can support the group’s profitability over the next few years.