Hailiang Education Group Inc.

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Hialeah Education Group's third quarter and first nine months of fiscal year 2021 earnings conference call. During today's presentation, all parties will be in a listen-only mode. This conference is being recorded today, Thursday, May 27, 2021. If you have any objections, you may disconnect at this time. Joining us today from Hai Liang Education Group are the company's chairman and CEO, Dr. Junwei Chen, the company's chief financial officer, Ms. Deborah Lee, and the company's board secretary, Mr. Li Chao-Chu. I would now like to hand the conference over to Mr. Li Chao-Chu, board secretary of Hai Liang Education Group. Thank you. Please go ahead.

Thank you, operator. On behalf of our entire management team, I would like to thank everyone for joining us today for our conference call. I would like to remind our listeners who are on this call, management's prepared remarks contain forward-looking statements which are subject to risks and uncertainties, and management may take additional forward-looking statements in response to your questions. Therefore, the company claims the protection of safe harbor for forward-looking statements as contained in U.S. private security litigation reform as of 1995. Forward-looking statements involve inherent risks and uncertainties, such as, as such, our result may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in our project filing with SE. Highline Education is under no application to update or alert these forward-looking statements, whether as a result of new information, further events, or otherwise. For those who are new to our company, we are included in our earnings presentation, a brief corporate introduction in Section 1 and 2, which you will download from our IR website. The copy of our Earnings Trust Release has been distributed on May 26, 2021 after market closed Eastern Time. It's available on our IR website. Please note, all the numbers in our mentioned remarks are in RMB and all comparisons refer to year-over-year comparisons, unless otherwise stated. At this time, I would like to turn the call over to Dr. Junwei Chen, the company's chairman and CEO. Dr. Chen, please go ahead.

谢谢主持人。 感谢大家今天来参加海量教育2021财年第三季度及前九个月财报的业绩说明会。 在今天的这个会议当中,我们将会对我们第三季度的以及前九个月的业绩进行概述性的介绍, Thank you, operator, and everyone for joining Hai Liang Education Group in corporate third quarter and the first nine months of the fiscal year 2021 earnings conference call today.

On our call today, I will give an overview of our performance for the third quarter and the first trimester of this fiscal year. Mr. Li Taoxiu, the Board Secretary, will introduce the company's operational highlights of this quarter. Then our Chief Financial Officer, Mr. Dalbo Li, will share the details of the company's financial review. Lastly, we will conduct a Q&A session to take your questions.

The overall epidemic prevention and control situation in China is very good. So we are also very happy to see that the main business of mass education has also fully recovered from the impact of the COVID-19 epidemic last year. In the third quarter, we continued to grow strongly in the first half of 2021 and maintained a very good rise. Our revenue in the third quarter of 2021 reached 4.348 billion yuan. The growth was 45.7%. The net profit reached 1.508 billion yuan. The growth was 65.9%. The company's share of net profit was 9,987,000 yuan. The growth was 67.2%. The growth of these outstanding results was due to the day-to-day optimization of the company's financial management and our budget control, as well as our continuous expansion of the school network. In 2021, we added five schools, The number of students has increased by 7,285. Currently, the number of students is about 3,400. It is estimated that it will reach 100,000 in three to four years. In September 2021, we will open two excellent private schools, Xianghu Future School and Ninghai Public School. Curiously.

the overall situation of the COVID-19 pandemic has become more stable. We are pleased to see our main business has fully bonused back from the impacts of COVID-19. Our performance in the third quarter of fiscal year 2021 showed strong growth from the first half of fiscal year 2021, maintaining a solid upward momentum. In the third quarter of fiscal year 2021, our revenue reached RMB 434.8 million, an increase of 45.7%. The growth perfect amount to RMB 150.8 million, an increase of 65.9%. The net profit attributed attributable to the shareholders of the company was RMB 99.9 million, an increase of 67.2%. Such outstanding progress also benefits from the company's increasingly refined management and budget control, as well as our expansion of school network. In the fiscal year 2021, we added five affiliated schools with a total capacity of 7,285 students. At present, there are about 3,400 students, and the total capacity of these schools are expected to be fully filled in three to four years. First of all, in September 2021, we plan to open two more premier private schools, Xianghu Future School and Ninghai Public School, which can provide a total enrollment capacity of more than 5,600 students. As one of the market leaders focusing on improving the quality of primary, middle, and high school education services and accelerated education services in China, We are confident that we will gain more market share and drive long, profitable growth for shareholders in the future. Next, Ms. Li Taozhou, our board secretary, will share with you the company's operational highlights of this quarter.

Thank you, Dr. Chen. Now, let's turn to the company's operational highlights of the quarter. While we continue expanding the company's network, We always follow the X-ray philosophy. Each person has a talent. Everyone can achieve potential, make every life shine, and put the well-run development of every student as our priority. As a result, our students have achieved great academic performance as of the third quarter of fiscal year 2021. Four students from our high school have received offers from Tsinghua University and Peking University. Among them, one student from our high school was admitted by Tsinghua University in advance through the first Chiu Cheng Tong Mathematical Science Leading Talent Training Program, which only enrolled about 60 students nationwide. 52% of the students in 2021 graduating class of our international programs have received a total of more than 400 formal and conditional offers. Among them, 61% of the students from A-level class and 87% of the students from the VCE class have received offers from the global top 550 universities. In addition to this excellent academic achievement, our students have also won many national awards in sports and subject competitions, especially in swimming, hockey, rugby and other national events. For example, in this quarter, two students won two gold medals and one silver medal respectively in a national swimming events. While expanding our business, we are also constantly evolving the tool development strategy. We vitalize education through technology and invertebrate education with talent to support the supply of technology and talent to promote the rapid and steady development of the company's major business. There has been some substantial progress in our executing the revitalized education through technology strategy in this quarter. For example, Highland Cloud Exercise, which focuses on online homework and precise teaching, can now fully support first-year students in senior high school in September this year, in that they no longer need to subscribe to paper materials. In addition, we are still dedicated to cultivating talent. In third quarter, we signed a cooperation agreement with 19 universities to build a talent training base. The Highland College at present will have established strategy cooperation relationship with seven top universities in China. We plan to continue to promote the two development strategies to provide more resources of technology and talent for the company's business development. Thank you for your continued support to the company. Next, I will turn the call over to Ms. Deborah Lee. She will share the company's financial review of this quarter and the first nine months of the fiscal year 2021 on behalf of the management team. Deborah, please go ahead.

Ms. Lee, is your line on mute perhaps?

I was on mute. Okay. I've been talking. All right. Thank you, Mr. Qiu. On behalf of the management team, I am going to share you the financial overview of the third quarter and the first nine months of the fiscal year 2021. Please note that all the numbers in our mentioned remarks are in RMB, and all comparisons refer to year-over-year comparisons. unless otherwise stated. Our revenue was up 45.7% to RMB 434.8 million for this quarter and was up 30.9% to RMB 1,371.8 million on a nine-month basis. Primarily due to the revenue increase from primary, middle, and high school education services and education training services. Revenue from the primary, middle, and high school education services was up 36.7% to RMB 365.8 million for this quarter and was up 31.3% to RMB $1,190.4 million on a nine-month basis. The increase was due to the following reasons. First, we expanded our school network. As a result, the number of students and the annualized average tuition charge increased. As of March 31, 2021, there were a total of 27,310 students in all affiliated schools, an increase of 14.8%. The annualized average tuition fee is estimated to be R&D $61,000. 880 in the fiscal year 2021, an increase of 4.3%. Second, our scores were closed in the third quarter of last year after the outbreak of COVID-19. Therefore, revenue of education, accommodation, and transportation services were decreased for the third quarter of last year. Third, as the 2019-2020 school year extended from June 2020 to July 2020 due to COVID-19, a portion of revenue was not recognized until July 2021. The income deferred to 2020-2021 school year was approximately RMB 36.4 million. And for education training services, revenue was up 1,237.5% to RMB 42.8 million for this quarter. The increase was due to the expansion of education training services for the same period last year was limited by the outbreak of the COVID-19. The educational training business grew rapidly this quarter, resulting from the enrollment season during the winter vacation and at the beginning of the semester. On a nine-month basis, revenue was up 119.3% to RMB 102.2 million as we expanded our educational training business lines, service network, and the increase of education training demand post-COVID-19 era in China. The educational training business has served a total of 109,639 student attendances with an increase of 414.9% on a nine-month basis Revenue from education and management services was up 26.9% to RMB 15.1 million for this quarter and was up 74.6% to RMB 48.2 million on a nine-month basis. The increase was because we added two managed schools and expanded our service scope. to some management schools. For the cost of revenue, we continue to optimize our cost structure through comprehensive and disciplined budget control. The cost of revenue was up 36.8% to RMB $284 million for the third quarter and was up 20% to RMB $859.5 million on a nine-month basis. The increase was primarily due to increased staff costs and decreased student-related costs of COVID-19 in the third fiscal quarter of last year. Growth profit was up 65.9%, to RMB 150.8 million for the quarter and was up 54.5% to RMB 512.2 million on a nine-month basis. The gross margin was up 4.2% points to 34.7% for the quarter and was up 5.7% percentage point to 37.3% on a nine-month basis. We maintained a stable operating expenses structure. Operating expenses were up 42.1% to RMB 31.4 million for the quarter and were up 21.4% to RMB 84.4 million on a nine-month basis. Selling expenses were up 103.4% to RMB 10.4 million for the third quarter and were up 48.1% to RMB 30.7 million on a nine-month basis. The increase was primarily due to the increase of commission for the new student enrollment related to the education training business compared to the same period of last year. Administrative expenses were up 23.6% to RMB $21 million for the third quarter, primarily due to the increase in average labor costs and the number of office and administrative staff. Administrative expenses increased by 10.1% to RMB 53.7 million on a nine-month basis due to the increase in average labor costs and the number of our office and administrative staff, and partially offset by the reduction in administrative administrative expenses from the liquidation of Jiangxi Haibo Education Management Company, LTD, in the second quarter of the fiscal year 2020. Net profit attributable to the company's shareholders was up 67.2% to RMB 99.9 million for the quarter. and was up 39.4% to RMB 367.8 million on a nine-month basis. Net profit margin attributable to the company shareholder was up 3% points to 23% for the quarter and increased by 1.6 percentage points to 26.8% on a nine-month basis. As of March 31, 2021, the company has cash and cash equivalents of RMB 193.5 million, and the asset liability ratio was 30.8%. Please note that our liability, amending operating liability, which are the tuition fee we collected at the beginning of the school year, the company has no interest bearing debt. On a nine-month basis, net cash provided by operating activities was up 158.6% to RMB $728.6 million. Net cash used in investing activities was RMB 1,023.8 million. And net cash used in financing activities was RMB 25.7 million. And that is my report. Now I will turn the discussion over to the operator for any questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question from the queue, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Grace Lee, individual investor. Please go ahead.

Good morning, management. Just one question from my side. How does management view the revised education rule for law on the promotion of private education, which was promulgated recently, and what measures does the company plan to take? Thank you.

Okay. This is Lee Tao-Chiu. I'm the board secretary. Let me answer your question. This is actually a big question. Okay. We note that the implementation rules were promulgated by the State Council on May 14 this year. We believe that the State Council does not change the two major directions for private education, which is the support and supervision. The implementation rule clearly addresses the restriction of external expansion model by merger and acquisitions of private education school offering compulsory education. However, there's no relevant restrictions on the development model which oriented from organic growth such as the self-deal and asset life sponsorship model. So currently, most of our affiliate school network expands gradually through the way of organic growth of asset line model. So the impact of implementation role on our future expansion of school network is controllable. This is worth mentioning that in September this year, we plan to add two additional affiliate school through asset line sponsorship model. and with developments of education revitalization projects, the scale of our school network will be further expanded. And besides, Highline Education is positioned as the private education service provider and has been preparing for business transformation to prepare teaching visits from the non-teaching visits since 2018. we provide non-teaching services directly to students by service providers through setting up service companies. So there's no that related party transaction between the company and school. Furthermore, the effective tax rate of our consolidated payments is also about 25%. So, which means that the company has transferred into an education service provider and that directly provides the student related services to gain the process. So currently the implementation rule has no substantial impact on the company's daily operation and development. We will continue to abide by national policies, laws and regulations and with the premise of operating in accordance with the laws and regulations. We try to provide students with higher quality education services to create more profitable growth for our shareholders. This is a quite important question, so let me speak this in Chinese again. 谢谢投资人的提问,独立投资人的提问。 我们也注意到, On May 14, 2021, the Ministry of Education of China issued the Act on the Implementation of Civil Education. We believe that the country's support and supervision of civil education has not changed in these two directions. The policy of this Act clearly emphasizes the expansion of limited-use educational schools. But for self-development, self-employment, There are no related restrictions on the development model, mainly related to internal growth. Moreover, most of the schools that Hainan Education has currently independently established are gradually expanding through the way of internal growth of green assets. Therefore, the impact of the expansion of the future scale is controllable. Another thing worth mentioning is that in September this year, we will add two green asset So since the beginning of 2018, we have been preparing for the transformation of this business. So this teaching business and non-teaching business to make a separation. Non-teaching business, in the form of establishing a service company, is provided directly to students and parents by the service company. There is no concept education between schools. So our merger report, in fact, is also an effective tax rate of about 25%, which means that Hainan Education has turned into a company that directly provides relevant services through education service companies and obtains revenue We will continue to follow the national policy, law and regulations, and provide higher quality education services for students under the premise of protecting the legal and regulatory management. This is the answer to your question. Thank you.

Our next question comes from Amanda Jeff, individual investor. Please go ahead.

Hi, Manjimant. Congratulations for your third quarter's performance. I just have one question. What's your forecast for the company's domestic and overseas future development?

Okay. This is Li Taochu again. Let me answer your question. Thank you. Currently, the company is actively promoting three main actions for external expansion, including, number one, managing public and private school and living land and school campus to sponsor additional school through the asset line model. Number two, implementing education revitalization project in county area. Number three, building the Bell and Rowe community of shared education. So with the implementation rule coming into effect on September this year, We expect that there will be more and more schools that need to be managed, especially private schools. We will actively manage public schools that are outback in local ranking. There's ample space for implementing school running quality of those schools. So the income growth space for those schools is also significant. With the slow decline of birth rate, we expect that the resources of public and private school will be gradually surplus in the future. Only the private education group that was a strong brand and academic performance will be continued to maintain competitiveness. So therefore, in the future, there will be a lot of education assets and have already been built and we will have plenty of opportunity to run a school by the way of living under asset line model. So meanwhile, in order to solve the problem of Education Island, we are closely promoting education revitalization project in county area by exporting management talent and building resource share platform. so as to attract local tenants to return to their hometown at the same time. And for the overseas part, taking Singapore headquarters as the global base, company will comprehensively promote the Belt and Road Highland International Talent Project and lay out Highland basic education schools in countries along the Belt and Road line. In general, we will achieve those three actions mainly through brand empowerment, the output of our management talent and smart management system, and as well as building a teacher resource sharing platform. Through those actions, we were able to expand our domestic and overseas school networks, which helps build a student platform for our future high-level education ecological industrial chain. So therefore, we can provide a variety of education services for students who are on the school platform. So for example, using our brand and resource advantage to actively develop educational training business in the area where Hai Liang K-12 school is located. Moreover, With the premise of the static growth of student enrollment rate, we can provide our services of overseas study consulting to students that are not enrolled in our school. Also, we will establish one school, one campus to develop domestic and overseas study trip service with the support and our school network advantages and so on. Again, answer this in Chinese again. 谢谢你的提问。 公司目前正在积极推进对外的扩张三大行动, 包括轻资产的模式的投资, 公办民办学校以及轻资产租赁办学, 先发达现役振兴打造一带一路教育共同体, In addition, with the implementation of the Civil Affairs Act, we expect that more and more schools will need to be delegated, especially civil schools. We will actively delegate the service of civil schools, especially civil schools in local ranks. The promotion space of these schools is very large, so the revenue space that can be obtained will also be relatively large. In addition, With the decline in the population, we predict that the resources of future public and private schools and private schools will be gradually overshadowed. The companies and schools that can continue to maintain competitiveness will be very strong private and private education institutions. Therefore, there will be a lot of education assets that have been built in the future. We think that there is a lot of room for new asset leaseholding in the way of lending. At the same time, in order to solve the problem of lonely education, Singapore. and the Global Headquarters of the Global Headquarters of the Global Headquarters of the Global Headquarters of the Global Headquarters of the Global Headquarters of will expand the school network in China and overseas, build school platforms, and build a higher-level educational and ecological industry chain. Therefore, we can provide students with diversified teaching services for schools within the school network, such as using a large number of teaching brand advantages and resource advantages to actively set up education and training businesses in the area where K12 schools are located. At the same time, So this is the answer to your question. Thank you.

Our next question comes from Peter Chang, individual investor. Please go ahead.

Okay, thank you very much. My question is for the CFO, and I've noticed that the company's revenue in this quarter and the first nine months of fiscal year 2021 has shown an upward trend. The gross rate of revenue in the third quarter was 45.7%. which was slightly higher than that in the first nine months, which was 30.9%. And what is the reason for the increasement? Thank you very much.

Thank you for your question, Peter. In this third quarter of fiscal 2021, revenue reached RMB 434.8 million, an increase of 45.7. from 298.5 million for the same period of last year. So you are correct on that. On a nine-month basis, revenue was RMB 1,371.8 billion, an increase of 30.9% from RMB 1,000. 47.9 billion for the same period of last year. The increase rate of revenue in this quarter is relatively high due to the following reasons. First, our school was closed in the third quarter of last year at the outbreak of COVID-19. Therefore, revenue of education, accommodation and transportation services were decreased for the third quarter of last year. Meanwhile, the expansion of education training services for the same period last year was also limited by the outbreak of the COVID-19, which resulted in a relatively low level of revenue from education training services. Second, due to the strong expansion of the online education training services in this fiscal year and the enrollment season during the winter vacation and at the beginning of the semester, the revenue of the education training business grew rapidly this quarter. Both of the two reasons cost the increase rate of revenue in the third quarter, which is higher than in the first nine months. I hope that I answered your question.

Our next question comes from . Please go ahead.

Okay, thank you, operator, and good morning, management. I'm an individual investor, and I have a question for CFO Deborah Lee. And I have noted that the company has added five affiliated schools in this fiscal year. How does this new school contribute to the company's revenue and profits in this fiscal year? And let's analyze our situation fee of these new schools this year. Thank you.

Well, thank you, Lucy, for your question. In the fiscal year 2021, the company added five affiliated schools with a total capacity of 7,285 students. At present, there are about 3,400 students in these five schools, and we expect to fill the capacity of these five schools in three to four years. Among these five schools, three are newly opened, i.e., Lanzhou Hailiang Experimental School, Hailiang Overseas Chinese School, and Wuhu Hailiang Experimental School. The fourth one is Feicen Hailiang Foreign Language School. incorporated on April 26th, 2021. As of March 31st, 2021, it has not contributed to the company's revenue and profit yet. The fifth one is Junhua Hailiang Foreign Language School. In the first nine months of the fiscal year 2021, The total revenue of the four schools, other than Fei Chen Highland Foreign Language School, was RMB 74.35 million, accounting for 6.2% of the company's overall revenue from the primary, middle, and high school education services. China Overseas Chinese School has enrolled 920 students in this fiscal year and the number of students enrolled in the first academic year has exceeded half of its total capacity. In the first nine months of the fiscal year 2021, the school contributed about RMB 4.75 million to the company. We expect these four schools annualized average tuition fee in the fiscal year 2021 will reach IMB 39,502 million. That is the answer to your question.

Seeing no further questions, let me turn the call over to Mr. Retail Chu, the company's board secretary, for closing remarks.

Okay. Thank you, operator. Thank you very much for joining this conference call. If you have any questions, please contact us through email at ir at highlandeducation.com or reach our IR Council Assess Investor Relationship at Tina.Shell at sn-ir.com. Management will respond to your questions as soon as possible. We appreciate your interest and support in HLAA and look forward to speaking with you again next time. Thank you.

Thank you again for attending HLAA's third quarter. and first nine months of fiscal year 2021 earnings conference call. This concludes our call today, and we thank you all for listening in. Goodbye.