Hong Kong’s stock market is set to welcome another Chinese school operator after Minsheng Education started premarketing an initial public offering on Monday.
Bankers familiar with the situation said the Chongqing-headquartered school operator wants to raise $200 million by floating around a quarter of its business early next month.
It will be the third Hong Kong IPO in the education sector this year, coming hot on the heels of Wisdom Education and Yuhua Education, which together raised $308 million from their listings in January and February, respectively.
These deals swell the ranks of a market that could already boast good comparables in the sector. Two other Chinese school operators, China Maple Leaf Education and Virscend Education, were already listed at the start of this year.
Minsheng Education will hope to replicate the success of Wisdom Education, the shares of which have risen as much as 6% since trading began in late January. Henan-based Yuhua Education is set to start trading on Tuesday.
The large number of similar companies in the market is, in one sense, a good thing for Minsheng Education. It means investors will already be comfortable with the sector. But there is a downside to this greater awareness among investors — new companies will need to make themselves stand out from the crowd.
Minsheng Education operates in a different segment of China’s education system to the other recent listing companies. It provides junior college, undergraduate and secondary vocational education, and targets students aged 18 or above. That differentiates it from Wisdom Education, which focuses on primary education, and Yuhua Education, which offers full service education from kindergarten to university.
The company also had a unique geographical spread. Minsheng Education runs a vocational college in the less-developed province of Inner Mongolia, giving it a trump card compared to the other school operators, which operate mostly in eastern coastal regions and tier one cities.
Still, most of Minsheng Education’s revenue comes from its three schools in Chongqing, one of China’s four direct-controlled municipalities.
Unlike most of its peers, however, Minsheng Education has some exposure to the education sector outside of its home market. It holds a 25.6% stake in Hong Kong’s Beacon International College and has an unspecified interest in Hong Kong Nang Yan College of Higher Education, according to its preliminary prospectus.
But bankers hope the most appealing factor will be the company's highly-profitable business model. In the first six months of last year, Minsheng Education achieved a net profit margin of 61.6%, which was much higher than Yuhua’s 38% and Maple Leaf’s 36.6%.
The company’s gross profit margin was 63.5% in the first six months, implying that its operational cost was merely 1.9% of its revenue. That was largely because of the company’s bumper income from foreign currency exchange gains, increased government subsidies and reduced rental income.
Apart from these one-off gains, most of the company's revenues came from tuition fees, while boarding fees accounted for about 7% of total revenue in the first six months last year.
Goldman Sachs’ private equity arm invested $37.3 million in Minsheng Education in 2007 and made an exit for $50 million in 2015. The company is now fully owned by chairman Li Xuechun and his daughter Li Ning. (It is perhaps worth noting that the company is not associated with China Minsheng Bank, one of the country’s 12 joint stock commercial lenders.)
At the end of June last year, Minsheng Education had 30,616 students enrolled in the four schools it operates.
Citigroup and Macquarie are the sponsors of Minsheng Education’s IPO.
