Maintaining HKD 13.20 Fair Value Estimate for China Education Group Following Share Placement

We're keeping our fair value estimate for China Education Group at HKD 13.20 per share following the company's share placement announcement. CEG completed a private placement of 147 million new shares, representing 6.17% of the outstanding shares before the placement, at HKD 10.94 per share. The issuance price was 17% below our fair value estimate and 8.8% below the Jan. 9 market closing price. CEG’s share price was down 5.5% on Jan. 10 due to dilution concerns, but we think the market has overreacted, since the placement would only reduce our fair value estimate by about 1%. Nonetheless, CEG’s share price has rebounded about 150% from its October 2022 lows. We consider the shares fairly valued at a 14% discount to our fair value estimate. We would prefer a higher margin of safety before buying.