RESEARCH: ReTech Technology, Peers Rerating Due To COVID-19

FYI | Jun 17 2020

Pitt Street Research suspects covid-19 has provided a catalyst for ReTech Technology

By Pitt Street Research

ReTech Technology ((RTE)), the Shanghai-based Edtech player, reported $34.9M (+29% YoY) in FY19 revenue (year-end December).

Attributable net profit experienced a slowdown in growth ($11.2M, +9.1% YoY), which was driven by significant investment in high-growth verticals – ESG and Language Learning – and higher one-off tax charges to enable the payment of the company’s first dividend.

RTE’s balance sheet remains strong with net cash of $19.3m, providing options for future M&A. $1.2m in dividend was paid, representing a pay-out ratio of 10.3%.

Acquisition of Shanghai Pantosoft

On the back of China’s proposed vocational education reforms to improve vocational education development via the co-operation with enterprises, in January RTE acquired 80% of Shanghai Pantosoft Co Limited, a China-based software provider, to complement its vocational vertical.

This acquisition should enable RTE to tap deeper into the large and growing domestic vocational school market.

COVID-19 drives demand for online learning

Recently, the occurrence of COVID-19 has changed the way people live and communicate, at least temporarily.

Due to many students being affected by school closures, RTE’s Ai Learning Solutions has recently launched a new teaching model known as "Studio2Home" which essentially provides online teaching for remote students.

As such, we see COVID-19 as a catalyst that drives RTE’s near-term growth.

Valuation upgraded to $1.33 – 1.64 per share

We upgrade our valuation for RTE to $1.33 – 1.64 per share (previously $1.19 – 1.49 per share) based on a blended methodology (DCF, EV/Sales).

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