Shenwan Hongyuan Group Co., Ltd. reiterated its "Buy" rating on XJ INTL HLDGS (01765) with a target price of HK$0.79, citing peaking cost pressures and anticipated profitability rebound. The firm believes the company's high-cost growth phase has ended after sustained investments, with operational efficiency set to improve.

Key highlights from the FY25 report show XJ INTL HLDGS achieved revenue of RMB3.96 billion (+6.1% YoY) and net profit of RMB390 million. Adjusted net profit (excluding goodwill impairment and convertible bond expenses) rose 6.5% YoY to RMB740 million, meeting expectations.

Cost controls stabilized in FY25, with student enrollment reaching 291,000 (+0.1% YoY). The student mix remained steady: undergraduates (48%), vocational students (49%, +2.4pp YoY), and technical school students (3%). Average tuition grew 6% YoY to RMB13,600/academic year. Gross margin stood at 42.1% as operating costs were contained at RMB2.29 billion.

To enhance efficiency, the company divested 8 underperforming schools (6 vocational, 2 undergraduate) between FY24–FY25. Its current 16 institutions are concentrated in Sichuan-Chongqing-Guizhou (11 campuses), with others in Ningxia, Shanxi, Jiangsu, Inner Mongolia, and Malaysia. Streamlining operations and increasing undergraduate enrollment share (51% in FY26, +3pp YoY) are expected to drive tuition income and margin recovery, despite a 35.4% YoY rise in FY25 student recruitment costs to RMB327 million. Adjusted net margin remained resilient at 18.6%.

Risks include slower-than-expected tuition hikes and delays in profit-oriented school conversions.