YuHua Education’s profit doubles as it bids adieu to Thailand

The Zhengzhou-based private education company’s shares have soared since last month as investors cheer its embrace of vocational training and debt repayment

Key Takeaways:

• YuHua Education has shored up its balance sheet by selling its Thai schools to help pay back debt from a 2019 convertible bond issue
• With its revenue up by 7% in the six months through February and adjusted profit more than doubling, the private educator gets a gold star for its latest financial results

By Edith Terry

Like most Chinese education companies, shares of China YuHua Education Corp. Ltd. (6169.HK) have been in the doldrums since 2021, after the government banned after-school tutoring for primary students and cracked down on private operators of K-12 schools.

The sector hasn’t fully recovered since then, and YuHua is no exception. But the company’s latest interim report for the first half of its fiscal year, released last week, shows the company is regaining its footing after shifting from its original focus on operating K-12 schools.

YuHua was just one of a spate of IPOs by online and offline education companies when it listed in Hong Kong in 2017, posting strong growth on a willingness by Chinese to spend heavily on education for themselves and especially their children. The group of stocks mostly followed similar trajectories, peaking in 2020 before crashing in 2021 with the crackdown. YuHua’s shares soared from their offer price of HK$2.05 per share to HK$7.80 at their height in 2020 before collapsing to their current level of about HK$0.50.

Yet YuHua was lucky. After plowing its IPO proceeds and a follow-up equity issue into investments in Thailand and Shandong, and issuing HK$2 billion in convertible bonds, it seemed likely to succumb to its heavy debt load and weak profits. A year ago, the company’s midyear results looked dismal, with a 52.5% drop in adjusted net profit to 229.5 million yuan ($31.8 million) and a slender 5.4% increase in revenue to 1.25 billion yuan.

This time around, the results look much better. Its revenue was up by 7.2% to 1.28 billion yuan and its adjusted net profit more than doubled year-on-year to 434.5 million yuan for the six months through February, the first half of its 2025 fiscal year.

Its adjusted net profit margin for the six months was 31.7%, nearly double the 16.2% from a year earlier, following significant belt-tightening. YuHua’s shares have soared 63% since it first released a preliminary version of its interim results at the end of April, as investors cheered the company’s ongoing turnaround.

So, what happened? After 2021, YuHua Education morphed many of its original K-12 schools into vocational schools, which weren’t subject to the crackdown. It abandoned K-9 education completely, and focused instead on grades 10-12 and above by offering services that were still allowed. Those included college preparatory services, as well as operating vocational high schools and colleges to meet the rising demand for people wishing to gain technical skills.

The shift to vocational education helped YuHua transform from black sheep to star student by aligning with government policy – a key component for successfully doing business in China. The Chinese government has been encouraging the growth of vocational schools to redirect students away from traditional universities and reduce unemployment.

Private school giant

At the time of its IPO in 2017, YuHua was China’s largest provider of private education for K-12 students, with 48,220 students on 16 campuses across Central China’s Henan province, as well as one university. Today its student body has more than doubled to 140,000, at four undergraduate universities, one junior college and 20 primary and secondary schools, according to YuHua’s website. The company’s latest annual report puts the student figure a bit lower, saying it enrolled 108,964 students for the 2024/2025 academic year.

The company has pulled through some hard times. Its annual revenue for its 2024 fiscal year of 2.5 billion yuan was 24% above its revenue in 2020. But its adjusted net profit of 500.7 million yuan for 2024 was only half the 1 billion yuan for 2020.

In 2019, the company was flush with cash from the IPO and a follow-on equity offer of HK$936.7 million ($120 million) in November 2017. In November and December 2019, it issued HK$940 million in convertible bonds, then repurchased them and issued a new tranche of HK$2 billion in convertible bonds due in December 2024. It used some of its cash to purchase assets in Thailand and Shandong province, for 63.7 million yuan and 1.49 billion yuan respectively.

Both the Thai acquisition, which included the licensing and operational rights to Stamford International University in Thailand, and the convertible bonds quickly came back to haunt the company. Private sector education in Thailand is at least as competitive as in China, if not more so. The Thai operation appears to have remained more of a trophy asset than a productive one, and its reported annual contribution to YuHua’s adjusted gross profit of 4.3 million yuan has remained unchanged since 2020. According to YuHua’s 2024 annual report, the Shandong assets also led to significant costs for updates and renovations between 2022 and 2024, leading to a goodwill impairment of about 168 million yuan between 2023 and 2024.

DBS Group Research flagged the risks associated with the convertible bond and the Thai operation as early as April 2019, although it said the company’s fundamental growth remained strong. In December 2024, YuHua calmed investors by repurchasing the bonds and selling the Thai assets for HK$240 million.

Those moves appear to have put the company back on more stable financial footing, and YuHua’s high margins and relatively stable revenue, together with its focus on vocational education, make it look like a survivor. Its market cap of HK$2 billion is substantially more than Wisdom Education’s (6068.HK) HK$253 million, although both companies have similarly low price to earnings (P/E) ratios of 2.7 are 2.56, respectively.

Those lag behind larger peers that use more asset-light models by offering services online and in smaller urban classrooms, rather than operating their own campuses. New Oriental (EDU.US; 9901.HK), whose shares crashed spectacularly in 2021, is back in business with a trailing P/E ratio of 20, while TAL Education (TAL.US) trades at a forward P/E ratio of 26.

Only one analyst polled by Yahoo Finance follows YuHua, but that person rates the company’s stock a “buy.” Even that modest coverage looks relatively encouraging for a class of stocks that were once investor darlings but have fallen off investor radar screens since the education crackdown of 2021.

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