Intrinsic Value East Buy Holding Limited (1797.HK)

• Previous Close: HK$26.68
• Intrinsic Value: HK$14.63
• Upside potential: -45%

Stock Valuation Context

Business Model And Market Position

East Buy Holding Limited, operating as Koolearn Technology, is a prominent Chinese online education provider specializing in extracurricular services across three core segments: College Education, K12 Education, and Pre-school Education. The company generates revenue primarily through the sale of pre-recorded online education packages and courses, targeting college students, working professionals, and K12 students preparing for critical exams. Its business model leverages a B2B2C approach, supplying content to institutional clients like universities, public libraries, and telecom operators, while also engaging directly with consumers through its proprietary apps, such as Donut English. Operating within China's competitive and regulated private education sector, the company has established a strong market position by focusing on test preparation and after-school tutoring, areas with consistent demand. Its asset-light digital distribution allows for scalable content delivery and margins, though it navigates significant regulatory oversight and market saturation. The firm's brand recognition and diversified educational offerings support its resilience amid sector volatility, positioning it as a specialized player in China's evolving edtech landscape.

Revenue Profitability And Efficiency

For FY 2024, the company reported robust revenue of HKD 6.53 billion, with net income reaching HKD 1.72 billion, indicating strong profitability. The high net income relative to revenue suggests efficient cost management and a scalable operating model, likely driven by its digital delivery platform and minimal physical infrastructure requirements.

Earnings Power And Capital Efficiency

Diluted EPS stood at HKD 1.61, reflecting solid earnings power. Operating cash flow was healthy at HKD 856 million, significantly exceeding modest capital expenditures of HKD 35.9 million, demonstrating excellent capital efficiency and the ability to generate cash from core operations without substantial reinvestment needs.

Balance Sheet And Financial Health

The balance sheet is exceptionally strong, with cash and equivalents of HKD 2.26 billion vastly exceeding total debt of HKD 94.8 million. This positions the company with a net cash position, indicating low financial risk and ample liquidity to fund operations or strategic initiatives without leverage concerns.

Growth Trends And Dividend Policy

The company does not pay a dividend, retaining all earnings to support growth initiatives. The financial profile suggests a focus on reinvesting cash flows into the business, likely for content development, technology enhancements, or potential market expansion, rather than returning capital to shareholders.

Valuation And Market Expectations

With a market capitalization of approximately HKD 22.6 billion, the company trades at a P/E ratio derived from its earnings, reflecting market expectations for its niche in online education. The significantly negative beta of -3.082 indicates a historical price movement highly inversely correlated to the broader market, suggesting unique risk factors influencing its valuation.

Strategic Advantages And Outlook

The company's strategic advantages lie in its established brand, diversified educational segments, and asset-light digital model. The outlook must consider China's dynamic regulatory environment for private education, which presents both challenges and opportunities for compliant, scalable operators like Koolearn.

Sources

Company Annual ReportHong Kong Stock Exchange Filings