(hk$) 7.0 edvantage group | 382 hk 6...edvantage refunded c.rmb18m to students in 3q fy20, leading...

This research report has been created by CCB International Securities Limited. Analyst certifications and other important disclosures on last page 1

China

Education July 16, 2020

Edvantage Group | 382 HK

Strong organic growth

Steady performance in 1-3Q FY20

Commencements of new campuses to support growth

in FY21-22F

1-3Q performance in-line. Edvantage announced 1-3Q FY20 (Sep 2019

to May 2020) operational updates with (1) revenue up 15.4% YoY to

RMB609m, (2) GPM up 1.8ppt YoY to 49.1%, and (3) total student

enrolment up 8.0% YoY to 35,444. These disclosures were largely in-line

with expectations. As a result of the school closures amid COVID-19,

Edvantage refunded c.RMB18m to students in 3Q FY20, leading to softer

revenue growth of 8% in the quarter as compared to 1H FY20, during

which it recorded 18% growth. We expect a similar amount to be

refunded in 4Q FY20F, resulting in a total revenue impact of RMB36m in

FY20F. Favorably, the company saved over RMB30m in expenses amid

school closures, mitigating the impact.

Growth engines. Edvantage’s admission quota for the bachelor program

(专科) of its Huashang College dropped 1,000 YoY to 5,300 in SY20/21F,

slightly below our expectations. We attribute the decrease to the fact

that the government is accelerating the conversions of independent

colleges to private universities and therefore, gradually granting smaller

quotas to these colleges. However, we still expect Edvantage’s total

student enrolment to increase from 35,700 in FY20F to 45,000 in FY22F, as

the drop will be completely mitigated by the significant increase in junior-

to-bachelor program (专升本) in Huashang College (almost double) and

junior programs (专科) in Huashang Vocational College (+2,000). New

campuses in Sihui, Zhaoqing and Xinhui, Jiangmen, will support the

significant student enrolment growth and also pave the way for the

conversion of the status of Huashang College, in our view. Meanwhile,

tuition fee upgrades in recent years will continue to take effect, leading

to ongoing margin expansions in FY20-22F.

Maintain Outperform. We revise our earnings forecasts for FY20F/21F/22F

by -6%/0%/5% after factoring in the boarding fee refunds, latest student

enrolment numbers and contribution from the Xinhui campus. We roll

forward our valuation from CY20F to CY21F. Based on 15x P/E

(unchanged), we upgrade our target price from HK$5.67 to HK$6.78. The

completion of the conversion of Huashang College to university status

serves as a potential positive catalyst, as it would imply higher margins.

Outperform (maintained)

Current price: Target:

HK$5.80 HK$6.78

(as at 16 Jul 2020) (increased from HK$5.67)

Trading data

52-week range HK$ 2.56 – 6.57

Market capital (Ordinary)(m) HK$5,906 – US$ 762

Shares outstanding (m) 1,018

Free float (%) 26

3M average daily T/O (m share) 3.2

3M average daily T/O (US$m) 2.3

Expected return (%) – 12 month 19

Source: Bloomberg, CCBIS estimates

Share price vs HSCEI

Source: Bloomberg

Forecast and valuation

Year to 31 Aug 2018 2019 2020F 2021F 2022F

Revenue (RMBm ) 636 704 794 1,018 1,246

YoY (%) 5.3 10.7 12.8 28.2 22.3

Net profit (RMBm ) 162 217 298 386 486

YoY (%) 23.1 34.1 37.4 29.7 25.9

Fully diluted EPS (RMB) 0.216 0.277 0.292 0.379 0.477

YoY (%) 23.1 28.4 5.7 29.7 25.9

P/E (x) 22.5 18.5 18.0 13.9 11.0

DPS (HK$) - 0.013 0.097 0.125 0.158

Dividend yield (%) - 0.2 1.7 2.2 2.7

P/B (x) 7.1 3.2 2.8 2.4 2.1

ROAE (%) 27.1 19.4 17.0 18.9 20.5

Net debt/equity (%) 91 Net cash 8 9 Net cash

Source: Company data for historical years, CCBIS estimates for forecast years

Stock performance

Performance over 1M 3M Since

listing

Absolute (7.9) 28.3 102.1

Relative (%) to HSCEI (10.6) 23.5 108.8

Source: Bloomberg

Anita Chu

(852) 3911 8252

[email protected]

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

Edvantage Group (382 HK) HSCEI (rebased)

(HK$)

Edvantage Group (382 HK) | July 16, 2020

CCBI SECURITIES 2

Edvantage Group – business highlights (quarterly)

Key financials (RMBm) 1Q19 1Q20

YoY

change

(%/ppt) 2Q19 2Q20

YoY

change

(%/ppt) 3Q19 3Q20

YoY

change

(%/ppt)

Revenue 177 211 19.4 175 207 18.4 176 191 8.3

..tuition fees 162 193 19.5 161 188 16.6 162 191 18.0

…boarding fees 15 18 19.0 14 19 39.4 14 (0) -100.1

Revenue by school

...Huashang College 134 160 19.5 133 158 18.4 133 147 10.1

...Huashang Vocational

College

40 47 17.6 40 47 18.3 40 42 4.7

...GBCA 3 4 44.4 2 2 11.1 3 2 -33.6

COGS (91) (107) 17.7 (96) (108) 12.4 (92) (96) 4.8

Gross profit 86 104 21.3 80 100 25.5 85 95 12.2

GPM (%) 48.7 49.5 0.8 45.4 48.1 2.7 47.9 49.6 1.7

Source: Edvantage Group, CCBIS

Edvantage Group – business highlights (interim)

Key financials (RMBm) 1Q19 1Q20

YoY

change

(%/ppt) 1H19 1H20

YoY

change

(%/ppt) 1-3Q19 1-3Q20

YoY

change

(%/ppt)

Revenue 177 211 19.4 352 418 18.9 528 609 15.4

..tuition fees 162 193 19.5 323 382 18.0 485 573 18.0

…boarding fees 15 18 19.0 28 37 28.9 43 37 -14.5

Revenue by school

...Huashang College 134 160 19.5 267 317 18.9 400 464 16.0

...Huashang Vocational College 40 47 17.6 80 95 18.0 120 137 13.5

...GBCA 3 4 44.4 5 6 30.4 7 8 6.8

COGS (91) (107) 17.7 (186) (214) 15.0 (278) (310) 11.6

Gross profit 86 104 21.3 166 204 23.3 250 299 19.5

GPM (%) 48.7 49.5 0.8 47.0 48.8 1.7 47.3 49.1 1.8

Operational data 1Q19 1Q20

YoY

change

(%) 1H19 1H20

YoY

change

(%) 3Q19 3Q20

YoY

change

(%)

Student enrolment (as of period end)

...Huashang College 22,691 24,116 6.3 22,639 24,110 6.5 22,665 24,126 6.4

...Huashang Vocational College 9,582 10,661 11.3 9,533 10,661 11.8 9,541 10,662 11.7

...GBCA (Australia) 443 450 1.6 521 506 -2.9 611 619 1.3

…NYU Language (Singapore) - - - - 23 - - 37 -

Total 32,716 35,227 7.7 32,693 35,300 8.0 32,817 35,444 8.0

Average annual tuition fee per student

(RMB)

Huashang College 21,783 24,671 13.3 21,849 24,315 11.3 21,825 24,324 11.5

Huashang Vocational College 15,083 15,617 3.5 15,064 15,573 3.4 15,050 15,633 3.9

1Q19 1Q20

YoY

change

(%) 1H19 1H20

YoY

change

(%) 1-3Q19 1-3Q20

YoY

change

(%)

Capex (RMBm) 105 171 63.0 158 265 67.8 180 375 108.9

Source: Edvantage Group, CCBIS


CCBI SECURITIES 3

Edvantage Group – student enrolment assumptions

Student enrollment (as of 31 Aug) SY15/16 SY16/17 SY17/18 SY18/19 SY19/20 SY20/21F SY21/22F

Huashang College 22,179 21,917 21,770 22,665 24,110 27,110 30,110

Huashang Vocational College 10,025 9,859 9,735 9,541 10,661 12,000 14,000

GBCA 27 464 712 837 900 900 900

NYU language school 30 30 30

Student enrollment YoY change (%) SY16/17 SY17/18 SY18/19 SY19/20 SY20/21F SY21/22F

Huashang College (1.2) (0.7) 4.1 6.4 12.4 11.1

Huashang Vocational College (1.7) (1.3) (2.0) 11.7 12.6 16.7

GBCA 1,618.5 53.4 17.6 7.5 0.0 0.0

NYU language school 0.0 0.0

Source: Edvantage Group, CCBIS estimates

Edvantage Group – tuition fee and boarding fee assumptions

Average tuition fee estimate (RMB) SY15/16 SY16/17 SY17/18 SY18/19 SY19/20 SY20/21F SY20/22F



Average tuition fee YoY change (%) SY16/17 SY17/18 SY18/19 SY19/20 SY20/21F SY20/22F

Huashang College 5.1 7.0 10.2 11.5 11.5 11.0

Huashang Vocational College 7.1 4.4 4.7 3.5 3.5 3.5

Average boarding fee estimate (RMB) SY15/16 SY16/17 SY17/18 SY18/19 SY19/20 SY20/21F SY20/22F



Average boarding fee YoY change (%) SY16/17 SY17/18 SY18/19 SY19/20 SY20/21F SY20/22F

Huashang College 0.2 3.5 1.8 5.0 5.0 5.0

Huashang Vocational College 2.0 4.6 2.2 5.0 5.0 5.0

Source: Edvantage Group, CCBIS estimates


CCBI SECURITIES 4

Edvantage Group – profit and loss projections

Year to Aug, RMB m FY16 FY17 FY18 FY19 FY20F FY21F FY22F 1H FY19 2H FY19 1H FY20 2H FY20F

Revenue 573 604 636 704 794 1,018 1,246 352 352 418 376

YoY 5.5 5.3 10.7 12.8 28.2 22.3 10.0 11.3 18.9 6.7

Revenue breakdown

Huashang College 427 442 469 534 607 788 968 267 267 317 290

Huashang Vocational College 145 152 157 160 175 217 262 80 80 95 81

GBCA 0 10 11 10 11 13 15 5 5 6 5

NYU language school - - - - 0.3 0.3 0.4 - - 0.1 0.1

COGS (326) (333) (346) (362) (401) (513) (623) (186) (176) (214) (187)

Gross profit 247 271 290 342 393 505 623 166 177 204 189

YoY 9.8 7.1 17.9 14.8 28.5 23.3 15.3 20.4 23.3 6.9

Gross margin 43.1 44.9 45.6 48.6 49.5 49.6 50.0 47.0 50.2 48.8 50.3

Other income 8 8 17 22 30 43 48 11 11 12 17

Other gains and losses 1 5 14 29 15 21 21 15 15 3 12

Selling expenses (3) (7) (9) (7) (8) (10) (12) (3) (4) (4) (4)

YoY 110.7 26.1 (19.2) 10.8 25.0 20.0 (38.0) 2.7 43.1 (12.0)

As % of revenue 0.6 1.2 1.4 1.0 1.0 1.0 1.0 0.8 1.2 1.0 1.0

Administrative expenses (69) (64) (67) (82) (110) (128) (138) (33) (49) (59) (51)

YoY (6.6) 4.7 21.1 34.6 16.4 7.8 (2.7) 45.6 79.2 4.2

As % of revenue 12.0 10.7 10.6 11.6 13.8 12.6 11.1 9.4 13.8 14.2 13.5

Listing expense - - (4) (39) - - - (21) (18) - -

EBIT 184 212 241 266 320 431 541 135 132 156 164

YoY 15.3 13.8 10.3 20.0 34.7 25.7 13.8 6.9 15.4 24.7

EBIT margin 32.1 35.1 37.9 37.8 40.2 42.3 43.4 38.3 37.3 37.2 43.6

Depreciation and amortization 71 66 64 64 84 119 139 32 32 35 49

EBITDA 255 278 306 331 403 550 680 167 164 190 213

YoY 9.0 9.9 8.1 22.0 36.3 23.8 40.7 (12.6) 14.1 30.1

EBITDA margin 44.6 46.1 48.1 46.9 50.8 54.0 54.6 47.4 46.5 45.5 56.7

Share of results of associates - (0) - - - - - - - - -

Interest income 1 1 1 5 19 10 15 0 4 11 8

Interest expense (19) (14) (18) (28) (25) (28) (28) (14) (13) (12) (13)

Profit before tax 166 198 225 243 314 413 528 121 123 155 159

Taxation (32) (39) (48) (28) (16) (27) (42) (29) 1 (7) (8)

Effective tax rate 19.4 19.5 21.2 11.6 5.0 6.5 8.0 24.4 (1.0) 4.8 5.2

Profit (loss) from disc. operation 0 1 (2) 7 - - - 7 - - -

Minority interest (43) (30) (14) (6) - - - (6) - - -

Net profit 91 131 162 217 298 386 486 93 124 147 151

YoY 44.2 23.1 34.1 37.4 29.7 25.9 12.4 56.9 58.2 21.8

Net margin 15.9 21.7 25.4 30.8 37.5 37.9 39.0 26.4 35.1 35.2 40.1

Adjusted net profit 92 131 166 239 298 386 486 113 125 151 148

YoY 43.4 26.3 43.8 24.8 29.7 25.9 36.6 51.0 33.3 18.2

Adjusted net margin 16.0 21.7 26.1 33.9 37.5 37.9 39.0 32.2 35.6 36.1 39.5

Source: Edvantage Group for historical years, CCBIS estimates for forecast years


CCBI SECURITIES 5

Edvantage Group – balance sheet projections

Year to Aug, RMB m FY16 FY17 FY18 FY19 FY20F FY21F FY22F 1H FY20

Property, plant and equipment 1,091 1,097 1,176 1,180 1,913 2,559 2,704 1,379

Prepaid lease payments 55 56 54 199 194 190 186 269

Investment properties 0 0 0 45 44 44 44 45

Amounts due from related parties 4 0 0 0 0 0 0 0

Deposits paid for acquisitions 2 3 3 2 0 0 0 70

Deferred tax assets 3 3 5 5 7 8 9 4

Non-current assets - sub-total 1,155 1,159 1,238 1,432 2,159 2,801 2,943 1,776

Inventories 0 1 0 0 0 0 0 1

Trade and other receivables 23 8 23 32 32 32 32 144

Amounts due from related parties 10 18 115 2 20 20 20 3

Financial assets at FV through profit or loss 162 264 869 253 800 800 800 104

Prepaid lease payments 2 2 2 5 5 5 5 0

Pledged bank deposits 0 0 0 50 50 50 50 0

Bank balances and cash 196 216 149 1,352 550 494 1,039 742

Current assets - sub-total 393 509 1,158 1,695 1,457 1,402 1,946 995

Contract liabilities 436 457 568 682 769 986 1,206 419

Trade payables 16 18 8 7 12 13 14 7

Other payables 74 116 83 106 130 140 150 84

Amounts due to related parties 14 16 12 3 10 10 10 1

Amounts due to directors 50 38 28 0 0 0 0 0

Deferred income 1 4 6 6 8 9 10 6

Income tax payable 6 17 28 40 22 38 60 42

Current bank borrowings 176 266 214 166 200 200 200 49

Dividend payable 0 0 17 8 8 8 8 0

Financial guarantee contract 0 0 58 0 0 0 0 0

Current liabilities 774 932 1,024 1,019 1,159 1,404 1,658 613

Deferred tax liabilities 65 82 106 113 63 107 169 115

Non-current bank borrowings 234 28 568 390 500 500 500 280

Non-current liabilities 299 110 673 502 563 607 669 421

Shareholder equity 323 568 626 1,606 1,895 2,191 2,562 1,737

Minority 153 59 73 0 0 0 0 0

Total assets 1,548 1,668 2,396 3,127 3,617 4,203 4,889 2,771

Total liabilities and equity 1,548 1,668 2,396 3,127 3,617 4,203 4,889 2,771

Gross cash 196 216 149 1,352 550 494 1,039 742

Gross debt 410 294 782 556 700 700 700 330

Net debt (cash) 214 77 633 (796) 150 206 (339) (413)

Net gearing (%) 66.2 13.6 101.1 Net cash 7.9 9.4 Net cash Net cash

Return on assets - adjusted 5.9 8.2 8.2 8.6 8.8 9.9 10.7 6.1

Return on average equity - adjusted 28.4 29.5 27.8 21.4 17.0 18.9 20.5 11.6



CCBI SECURITIES 6

Edvantage Group – cash flow statement projections

Year to Aug, RMB m FY16 FY17 FY18 FY19 FY20F FY21F FY22F

EBITDA 255 278 306 331 403 550 680

Adjustments for other non-cash items (2) (4) (14) (35) - - -

Discontinued operations 0 1 (2) 7 - - -

Working capital changes:

Inventories 0 (1) 1 0 - - -

Trade and other receivables (13) 15 (15) (11) - - -

Contract liabilities 51 20 111 118 87 217 220

Trade payables (4) 2 (11) (1) 5 1 1

Other payables and deferred

income

13 45 (24) 26 25 11 11

Amounts due from/to related parties (11) 0 (2) (1) - - -

Interest received 0 0 0 5 19 10 15

Interest paid (22) (16) (27) (37) (25) (28) (28)

Tax paid (12) (11) (13) (11) (85) 33 40

Operating cash flow 256 330 311 391 430 794 940

Capex (160) (70) (133) (255) (810) (760) (280)

Free cash flow 96 260 178 135 (380) 34 660

Changes in financial assets at fair

value through P&L

(72) (102) (604) 616 (547) - -

Other investing cash flow 2 1 6 (37) 1 - -

Asset disposals - 0 1 4 - - -

Advances/repayments to/from

directors and related parties

(52) (14) (113) 76 (11) - -

New equity (net) - 0 (0) 629 - - -

Dividend - - - (9) (9) (89) (116)

Other cash flow (25) (10) (26) (0) - - -

Changes in bank borrowings 1 (116) 488 (227) 144 - -

Gross cash flow (49) 19 (69) 1,188 (802) (56) 544



CCBI SECURITIES 7

EDVANTAGE Group | 382 HK – financial summary

Profit and loss

FYE 31 Aug (RMB m) 2018 2019 2020F 2021F 2022F

Huashang College 469 534 607 788 968

Huashang Vocational

College

157 160 175 217 262

GBCA 11 10 11 13 15

NYU language school 0 0 0

Revenue 636 704 794 1,018 1,246

Gross profit 290 342 393 505 623

Other income 32 52 44 64 68

Operating expenses (81) (128) (118) (138) (150)

EBIT 241 266 320 431 541

Net financial income (exp) (17) (23) (6) (18) (13)

Profit before tax 225 243 314 413 528

Tax (48) (28) (16) (27) (42)

Total profit 177 215 298 386 486

Extraordinary items (2) 7 0 0 0

Minority interest (14) (6) 0 0 0

Net profit attrib to

shareholders

162 217 298 386 486

Core profit 166 239 298 386 486

Reported EPS (RMB) 0.22 0.28 0.29 0.38 0.48

Diluted EPS (RMB) 0.22 0.28 0.29 0.38 0.48

Core EPS (RMB) 0.22 0.28 0.29 0.38 0.48

Dividend (RMB)(m) – 9 89 116 146

DPS (HK$) – 0.01 0.10 0.13 0.16

Balance sheet

FYE 31 Aug (RMB m) 2018 2019 2020F 2021F 2022F

Cash & equivalents 149 1,352 550 494 1,039

Pledge dep., restricted

cash

- 50 50 50 50

Receivables 23 32 32 32 32

Other current assets 986 260 825 825 825

Total current assets 1,158 1,695 1,457 1,402 1,946

Property, plant &

equipment

1,176 1,180 1,913 2,559 2,704

Other non-current assets 63 252 246 242 239

Total non-current assets 1,238 1,432 2,159 2,801 2,943

Total assets 2,396 3,127 3,617 4,203 4,889

Short-term borrowings 214 166 200 200 200

Trade & bill payable 91 113 142 153 164

Other current liabilities 718 739 817 1,051 1,294

Total current liabilities 1,024 1,019 1,159 1,404 1,658

Long-term borrowings 568 390 500 500 500

Other non-current liabilities 106 113 63 107 169

Total non-current liabilities 673 502 563 607 669

Total liabilities 1,697 1,521 1,722 2,011 2,327

Share capital 242 1,014 1,094 1,121 1,151

Reserves and retained

profits

384 592 800 1,071 1,411

Shareholders' equity 626 1,606 1,895 2,191 2,562

Minority interest 73 - - - -

Total equity 699 1,606 1,895 2,191 2,562

Total equity and liabilities 2,396 3,127 3,617 4,203 4,889

Cash flow

FYE 31 Aug (RMB m) 2018 2019 2020F 2021F 2022F

Profit before tax 225 243 314 413 528

Amort. & depr. 64 64 84 119 139

Net financial charge adj. (27) (33) (6) (18) (13)

Non-cash items adj.

Change in working capital 62 130 118 229 232

Tax paid (13) (11) (85) 33 40

Other 0 (4) 6 18 13

Operating cash flow 311 391 430 794 940

Disposal of fixed assets 1 4 0 0 0

Capex (133) (255) (810) (760) (280)

Investment (604) 616 (547) 0 0

Net interest received (paid)

Other 6 (37) 1 0 0

Investment cash flow (729) 328 (1,357) (760) (280)

Change in borrowings 488 (227) 144 0 0

Equity issues (0) 629 0 0 0

Amount due (113) 76 (11) 0 0

Dividend paid 0 (9) (9) (89) (116)

Other (26) (0) 0 0 0

Financing cash flow 349 469 124 (89) (116)

Change in cash flow (69) 1,188 (802) (56) 544

Cash & equivalents, begin 216 149 1,352 550 494

Forex

Cash & equivalents, end 149 1,352 550 494 1,039

Free cash flow 178 135 (380) 34 660

Ratios

FYE 31 Aug 2018 2019 2020F 2021F 2022F

Growth (%)

Revenue 5.3 10.7 12.8 28.2 22.3

EBITDA 9.9 8.1 22.0 36.3 23.8

EBIT 13.8 10.3 20.0 34.7 25.7

Net profit 23.1 34.1 37.4 29.7 25.9

Core net profit 26.3 43.8 24.8 29.7 25.9

Profitability (%)

Gross margin 45.6 48.6 49.5 49.6 50.0

EBITDA margin 48.1 46.9 50.8 54.0 54.6

EBIT margin 37.9 37.8 40.2 42.3 43.4

Net margin 25.4 30.8 37.5 37.9 39.0

Core net margin 26.1 33.9 37.5 37.9 39.0

Tax rate 21.2 11.6 5.0 6.5 8.0

Efficiency (days)

Inventory turnover 1 0 0 0 0

Trades receivables 9 14 15 11 9

Trades payable 14 7 8 9 8

Returns & leverage (%)

ROAA 8.0 7.8 8.8 9.9 10.7

ROAE 27.1 19.4 17.0 18.9 20.5

Net debt (cash)/equity 90.5 -49.6 7.9 9.4 -13.2

Payout ratio - 4.1 30.0 30.0 30.0

Interest coverage

(14.5)

(11.5)

(52.4)

(24.5)

(42.7)

Liquidity (x)

Current ratio 1.1 1.7 1.3 1.0 1.2

Quick ratio 1.1 1.7 1.3 1.0 1.2

Source: Company data for historical years, CCBIS estimates for forecast years


CCBI SECURITIES 8

Rating definitions:

Outperform (O) – expected return > 10% over the next twelve months Neutral (N) – expected return between -10% and 10% over the next twelve months Underperform (U) – expected return < -10% over the next twelve months

Analyst certification:

The author(s) of this document, hereby declare that: (i) all of the views expressed in this document accurately reflect his/her personal views about any and all of the subject securities or issuers and were prepared in an independent manner; (ii) no part of any of his/her compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this document; and (iii) he/she receives no insider information/non-public price-sensitive information in relation to the subject securities or issuers which may influence the recommendations made by him. The author(s) of this document further confirm that (i) neither he/she nor his/her respective associate(s) (as defined in the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission issued by the Hong Kong Securities and Futures Commission) has dealt in/traded or will deal in /trade the securities covered in this document in a manner contrary to his/her outstanding recommendation, or neither he/she nor his/her respective associate(s) has dealt in or traded in the securities covered in this document within 30 calendar days prior to the date of issue of this document or will so deal in or trade such securities within 3 business days after the date of issue of this document; (ii) neither he/she nor his/her respective associate(s) serves as an officer of any of the companies covered in this document; and (iii) neither he/she nor his/her respective associate(s) has any financial interests in the securities covered in this document.

CCBI Group has had an investment banking relationship with 382HK [Edvantage Group] and 1525HK [Shanghai Gench].

Disclaimers:

This document is prepared by CCB International Securities Limited. CCB International Securities Limited is a wholly-owned subsidiary of CCB International (Holdings) Limited (“CCBIH”) and China Construction Bank Corporation (“CCB”). Information herein has been obtained from sources believed to be reliable but CCB International Securities Limited, its affiliates and/or subsidiaries (collectively “CCBIS”) do not guarantee, represent and warrant (either express or implied) its completeness or accuracy or appropriateness for any purpose or any person whatsoever. Opinions and estimates constitute our judgment as of the date of this document and are subject to change without notice. CCBIS seeks to update its research as appropriate, but various regulations may prevent it from doing so. Besides certain industry reports published on a periodic basis, the large majority of reports are published at irregular intervals as appropriate according to the analyst's judgment. Forecasts, projections and valuations are inherently speculative in nature and may be based on a number of contingencies. Readers should not regard the inclusion of any forecasts, projections and valuations in this document as a representation or warranty by or on behalf of CCBIS that these forecasts, projections or valuations or their underlying assumptions will be achieved. Investment involves risk and past performance is not indicative of future results. Information in this document is not intended to constitute or be construed as legal, financial, accounting, business, investment, tax or any professional advice for any prospective investors and should not be relied upon in that regard. This document is for informational purposes only and should not be treated as an offer or solicitation for the purchase or sale of any products, investments, securities, trading strategies or financial instruments of any kind in any jurisdiction. CCBIS makes no representations on the availability of the securities covered in this document (or related investment) to the recipients. The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. Neither CCBIS nor any other persons accept any liability whatsoever for any loss or damages (whether direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential) arising from any use of this document or its contents or otherwise arising in connection therewith. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors. The opinions and recommendations herein do not take into account prospective investors’ financial circumstances, investment objectives, or particular needs and are not intended as recommendations of particular securities, financial instruments or strategies to any prospective investors. 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In any event, future actual results may differ materially from those set forth in any forward-looking statements herein; (iv) future returns are not guaranteed, and a loss of original capital may occur; and (v) fluctuations in exchange rates may adversely affect the value, price or income of any security or related instrument referred to in this document. It should be noted that this document covers only those securities or companies as specified herein and does not extend to any derivative instruments thereof, the value of which may be affected by many factors and may not correspond with the value of the underlying securities. Trading in these instruments is considered risky and are not suitable for all investors. While all reasonable care has been taken to ensure that the facts stated herein are accurate and that the forward-looking statements, opinions and expectations contained herein are based on fair and reasonable assumptions, CCBIS has not been able to verify independently such facts or assumptions and CCBIS shall not be liable for the accuracy, completeness or correctness thereof and no representation or warranty is made, express or implied, in this regard. All pricing referred to in this document is as of the close of local market for the securities discussed, unless otherwise stated and for information purposes only. There is no representation that any transaction can or could have been effected at those prices, and any prices do not necessarily reflect CCBIS’ internal books and records or theoretical model-based valuations and may be based on certain assumptions. Different assumptions could result in substantially different results. 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certain customers focusing on the prospects for specific securities as compared with other covered securities over varying time horizons or under differing market conditions. While the views expressed in these situations may not always be directionally consistent with the long-term views expressed in the analyst's published research, CCBIS has procedures in place to prevent selective disclosure and will update the relevant readers when our views has changed. CCBIS also has procedures in place to identify and manage potential conflicts of interest that may arise in connection with its research business and services. Chinese Wall procedures are also in place to ensure that any confidential and/or price sensitive information is properly handled. CCBIS will use its best endeavors to comply with the relevant laws and regulations in this respect. Nevertheless, the recipients should be aware that CCB, CCBIS, their affiliates and/or their officers, directors and employees may do business with the issuer(s) of the securities covered in this document, including investment banking business or direct investment business or may hold interest in (and/or later add or dispose) such securities (or in any related investment) for themselves and/or on behalf of their clients from time to time. As a result, investors should be aware that CCBIS may have a conflict of interest that could affect the objectivity of this document and CCBIS will not assume any responsibility in respect thereof. Further, the information contained herein may differ or be contrary to opinions expressed by other associates of CCBIS or other members of the CCB or CCBIH group of companies. Where this document refers to any products, investments, securities, financial instruments or industry sectors, this is for the information of the institutional and professional customers of CCBIS only and this document should not be distributed to retail customers. This document is not directed at you if CCBIS is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available to you. You should satisfy yourself before reading it that CCBIS is permitted to provide research material concerning investments to you and that you are permitted and entitled to receive and read the document under relevant legislation and regulations. In particular, this document is only distributed to certain US Persons to whom CCBIS is permitted to distribute according to US securities laws, but cannot otherwise be distributed or transmitted, whether directly or indirectly, into the US or to any other US person. Any US person (as defined under the Exchange Act or the U.S. Internal Revenue Code of 1986, as amended) who is a recipient of this material wishing to effect any transaction to buy or sell securities or related financial instruments based on the information provided herein should direct such transaction exclusively to and such transaction shall be effected only through CCB International Overseas (USA), Inc. This document also cannot be distributed or transmitted, whether directly or indirectly, into Japan and Canada and not to the general public in the People’s Republic of China (for the purpose of this document, excluding Hong Kong, Macau and Taiwan) unless under applicable laws. Any unauthorized reproduction or redistribution by any means to any persons, in whole or in part of this document is strictly prohibited and CCBIS accepts no liability whatsoever for the actions of third parties in distributing this research report. If this document has been distributed by electronic transmission, such as e-mail, then such transmission cannot be guaranteed to be secure or error-free as information could be intercepted, corrupted, lost, destroyed, arrive late or incomplete, or contain viruses. CCBIS therefore does not accept liability for any errors or omissions in the contents of this document, which may arise as a result of electronic transmission. The disclosures contained in this document prepared by CCBIS shall be governed by and construed in accordance with the laws of Hong Kong.

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