Hailiang Education Group Inc. (HLG) Q3 2021 Results - Earnings Call
Hailiang Education Group Inc. (NASDAQ:HLG) Q3 2021 Results Conference Call May 27, 2021 8:30 AM ET
Company Participants
Dr. Junwei Chen - Chairman and Chief Executive Officer
Deborah Lee - Chief Financial Officer
Litao Qiu - Board Secretary
Conference Call Participants
Operator
Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Hailiang 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 Hailiang 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. Litao Qiu.
I would now like to hand the conference over to Mr. Litao Qiu, Board Secretary of Hailiang Education Group. Thank you. Please go ahead.
Litao Qiu
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 Securities Litigation Reform Act of 1995.
Forward-looking statements involve inherent risks and uncertainties, such as such, our results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in our public filings with SEC. Hailiang Education is under no obligation 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 including in our earnings presentation a brief corporate introduction in Section 1 and 2, which you are download from our IR website. The copy of our earnings press release has been distributed on May 26, 2021, after market closed Eastern time is 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 comparison, 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.
Dr. Junwei Chen
Thank you, operator, and everyone, for joining Hailiang Education Group Inc., 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 nine months of this fiscal year. Mr. Litao Qiu, the Board Secretary, will introduce the Company's operational highlights of this quarter. Then our Chief Financial Officer, Ms. Deborah Lee, will share the details of the Company's financial review. Lastly, we will conduct a Q&A session to take your questions.
Currently, the overall situation of the COVID-19 pandemic has become more stable. We are pleased that you see our MAM business as fully bounced backed from the impact 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 RMB434.8 million, an increase of 45.7%. The gross profit amount to RMB150.8 million, an increase of 65.9%. The net profit attributable to the shareholders of the Company was RMB99.9 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 this growth expected to be fully filled in three to four years. Furthermore, in September 2021, we plan to open two more premier public schools, Xianghu Future School and Ninghai Public School, which can provide a total environment 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 accelerate education services in China, we are confident that we will gain more market share and drive loan profitable growth for shareholders in the future.
Next, Ms. Litao Qiu, our Board Secretary, will share with you the Company's operational highlights of this quarter.
Litao Qiu
Thank you, Dr. Chen. Now let's turn to the Company's operational highlights of the quarter. While we continue expanding the Company's school network, we always follow the exit philosophy. Each person has a talent, everyone can achieve potential, make every life shine and put a well-run development of every student as our priority.
As a result, our student has 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, on student from our high school was admitted by Tsinghua University in advance through the first Qiu Chengtong Mathematical Science Leading Talent Training Program, which only enrolled about 60 students nationwide.
32% of the students in 2021 graduating class of our international programs have received a lot -- a total of more than 400 formal and conditional offers. Among them, 61% of the students from A-level class and 87% of the student from the VCE class has received offers from the global top 50 universities. In addition to this excellent academic achievement, our students have also won many national awards in sports and subject competition, especially in swimming, hockey, rugby and other national events.
For example, in this quarter, two national won two gold medals and one silver medal respectively in a national swimming event. While expanding our business, we are also constantly supporting the school development strategy. We vitalize education to technology and investor 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, Hailiang 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, and that they no longer need to subscribe to paper materials. In addition, we will still dedicate to cultivating payers in third quarter.
We signed a cooperation agreement with Nanjing University to build a talent training base. The Hailiang College at present, we have established strategic 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 talents 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.
Deborah Lee
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 RMB434.8 million for this quarter and was up 30.9% to RMB1,371.8 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 RMB365.8 million for this quarter and was up 31.3% to RMB1,190.4 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 charged increased. As of March 31, 2021, there were a total of 27,310 students in our affiliated schools, an increase of 14.8%. The annualized average tuition fee is estimated to be RMB61,880 in the fiscal year 2021, an increase of 4.3%.
Second, our schools were 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.
Third, as the 2019-2020 school year extended from June 2020 to July 2020 due to COVID-19, proportion of revenue was not recognized until July 2021. The income deferred to 2020-2021 school year was approximately RMB36.4 million. And for education training services, revenue was up 1,237.5% to RMB42.8 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 RMB102.2 million as we expanded our education training business by 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 students attendances with an increase of a 414.9% on a nine-month basis.
Revenue from education and management services was up 26.9% to RMB15.1 million for this quarter and was up 74.6% to RMB48.2 million on a nine-month basis. The increase was because we added two managed two managed course 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 RMB284 million for the third quarter and was up 20% to RMB859.5 million on a nine-month basis. The increase was primarily due to increased staff cost and decreased student-related costs of COVID-19 in the third fiscal quarter of last year.
Gross profit was up 65.9% to RMB150.8 million for the quarter and was up 54.5% to RMB512.2 million on a nine-month basis. The gross margin was up 4.2 percent points to 34.7% for the quarter and was up 5.7 percentage points to 37.3% on a nine-month basis. We maintained a stable operating expenses structure.
Operating expenses were up 42.1% to RMB31.4 million for the quarter, and were up 21.4% to RMB84.4 million on a nine-month basis. Selling expenses were up 103.4% to RMB10.4 million for the third quarter and were up 48.1% to RMB30.7 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 RMB21 million for the third quarter primarily due to the increase in average labor cost in a number of office and administrative staff. Administrative expenses increased by 10.1% in to RMB53.7 million on a nine-month basis due to the increase in average labor cost in the number of our office and administrative staff, and partially offset by the reduction in administrative expenses from the liquidation of Jiangxi Haibo Education Management Co., Ltd. in the second quarter of the fiscal year 2020.
Net profit attributable to the Company's shareholders was up 67.2% to RMB99.9 million for the quarter, and was up 39.4% to RMB367.8 million on a nine-month basis. Net profit and margin attributable to the Company's shareholders was up three percent 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 RMB193.5 million, and the asset liability ratio was 30.8%.
Please note that our liabilities are mainly in the operating liability, which are the tuition we corrected at the beginning of the fiscal year. The Company has no interest selling debt. On a nine-month basis, net cash provided by operating activities was up 158.6% to RMB728.6 million. Net cash used in investing activities was RMB1,023.8 million, and net cash used in financing activities was RMB25.7 million. And that is my report.
Now I will turn the discussion over to the operator for any questions.
Question-and-Answer Session
Operator
Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Grace Lee [ph], individual investor. Please go ahead.
Unidentified Analyst
Good morning, management. Just one question from my side. How does management view the revised Implementation rule or rules on the promotion of private education, which was promulgated recently and what measures does the Company plan to take? Thank you.
Litao Qiu
Okay. This is Litao Qiu, I'm the Board Secretary. Let me answer your question. This is actually a big question. Okay. We know that the Implementation Rules was 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 modeled 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-build and asset-light sponsorship model.
So currently, most of our affiliated school network expands gradually through the way of organic growth of asset line model. So the impact of Implementation Rule 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-light sponsorship model and with development of education reutilization project. The scale of our school network will be further expanded. And besides, Hailiang education is positioned as the private education service provider and has been preparing for business transformation to prepare teaching business from the non teaching business since 2018.
We provide non teaching services directly to students by service provider through setting up service companies. So there's no related party transaction between the Company and school. Furthermore, the effective tax rate of our consolidated statement 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 profit.
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 regulation, we try to provide students with higher quality education services to create more profitable growth for our shareholders. This is quite important question. So let me speak this in Chinese again. [Foreign Language] This is the answer to your question.
Operator
Our next question comes from Amanda Jeff [ph], individual investor. Please go ahead.
Unidentified Analyst
Hi, management 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?
Litao Qiu
Okay. This is Litao Qiu 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 leasing land and school campus to sponsor additional school through the asset light model. Number two, implementing education with utilization project in county area. Number three, on building the bell and roll community of shared education.
So with the Implementation Rules 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 all back in local ranking. There is ample space for implementing school running quality of those schools. So the income growth space for the school 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 groups that with a strong brand and academic performance will be continue to maintain competitiveness.
So therefore, in the future, there will be a lot of education assets and has already been built and we will have plenty of opportunity to run a school by the way of leasing under asset line model. So meanwhile, in order to solve the problem of education Hailiang, we by promoting education reutilization project in county area by exporting management, talent and building resource, share platform. So as to attract local talents, return to their hometown at the same time.
And for the overseas part, taking Singapore headquarter as the global base, company will comprehensively promote the bell and roll Hailiang international talent book and layout Hailiang basic education school in entries along the bell and roll 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 industry 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 an area where Hailiang K-12 school is located.
Moreover, with the premise of the step 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 on school one campus to develop domestic and overseas steady trip service with the support and our school network advantages and so on. I would again, answer this in Chinese again. Yes. [Foreign language] So this is the answer to your question.
Operator
Our next question comes from Peter Chang [ph], individual investor. Please go ahead.
Unidentified Analyst
Okay. 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 growth 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 are the reasons for the increasement? Thank you very much.
Deborah Lee
Thank you for your question, Peter. In this third quarter of the fiscal 2021, revenue reached RMB434.8 million, an increase of 45.7% from RMB298.5 million for the same period of last year. So you are correct on that. On a nine-month basis, revenue was RMB1,371.8 billion, an increase of 30.9% from RMB1,047.9 billion for the same period of last year. The increased rate of revenue in this quarter is relatively high due to the following reasons.
First, our schools 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 are the two reasons caused the increase rate of revenue in the third quarter, which is higher than in the first nine months. I hope that answered your question.
Operator
Our next question comes from Lucy Hwang [ph], private individual investor.
Unidentified Analyst
Okay. I'm an individual investor, and I have a question for CFO, Deborah Lee. And I have noted that the Company has added file affiliated schools in this fiscal year. How do these new schools contributed to a company's revenue and profits in this fiscal year? And what's the annualized average tuition fee of these new schools this year?
Deborah Lee
Thank you, Lucy for your question. In the fiscal year 2021, the Company added five affiliated school 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 Feicheng Hailiang Foreign Language School incorporated on April 26, 2021. As of March 31, 2021, it has not contributed to the Company's revenue and profit yet. The fifth one is Jinhua Hailiang Foreign Language School.
In the first nine months of the fiscal year 2021, the total revenue of the four schools other than Feicheng Hailiang Foreign Language School was RMB74.3 million, accounting for 6.2% of the Company's overall revenue from the primary, middle and high school education services. Hailiang 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 RMB4.75 million to the Company. We expect these four schools' annualized average tuition fee in the fiscal year 2021 will reach RMB39,502 million. And that is the answer to your question.
Operator
Seeing no further questions. Let me turn the call over to Mr. Litao Qiu, the Company's Board Secretary for closing remarks.
Litao Qiu
Okay. Thank you, operator. Thank you very much for joining this conference call. If you have any questions, please contact us through e-mail at ir@hailiangeducation.com or reach our IR Council, Ascent Investor Relations at tina.xiao@ascent-ir.com. Management would response to your questions as soon as possible.
We appreciate your interest and support in Hailiang Education and look forward to speaking with you again next time. Thank you.
Operator
Thank you again for attending Hailiang Education Group'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.
