Executive Summary / Key Takeaways

• Afya Limited stands as a dominant force in Brazil's expanding medical education market, leveraging a highly predictable business model that consistently delivers robust growth, increased profitability, and solid cash generation. The company's strategic focus on a comprehensive "medical journey" ecosystem, from undergraduate to specialized practice solutions, underpins its competitive advantage.
• Recent financial performance highlights Afya's operational excellence, with first-half 2025 revenues reaching BRL 1,856 million, a 15% year-over-year increase, and adjusted EBITDA expanding 20% to BRL 893 million, achieving a record 48.1% margin for the period. This profitability is driven by strategic acquisitions, campus maturation, and significant operational restructuring.
• Afya's differentiated technology, including its integrated digital platforms for clinical decision-making and practice management, provides a crucial competitive moat, enhancing efficiency for medical professionals and fostering deep engagement across its ecosystem of over 300,000 active users.
• Despite an increasingly competitive landscape and the impact of Brazil's new OECD Pillar Two tax legislation, Afya maintains a confident outlook, reaffirming its full-year 2025 guidance. The company is actively challenging the tax rules' impact on the PROUNI program and has initiated a share repurchase program to enhance shareholder value.
• The Brazilian medical education market is projected to grow at an 8.70% CAGR from 2025-2034, driven by a persistent demand for healthcare professionals and government initiatives like "Mais Médicos". Afya is well-positioned to capitalize on this secular trend through its proven M&A strategy and organic expansion.

The Pulse of Brazilian Medical Education: Afya's Enduring Strategy

Afya Limited, founded in 1999, has meticulously carved out a leadership position in Brazil's critical medical education and practice solutions sector. The company's overarching strategy centers on creating an integrated ecosystem that supports medical professionals throughout their entire career journey, from aspiring students to seasoned practitioners. This comprehensive approach, encompassing undergraduate programs, continuing education, and medical practice solutions, not grueling addresses the persistent demand for qualified healthcare professionals in Brazil but also establishes a predictable and resilient business model. The Brazilian medical education market is experiencing robust expansion, projected to grow at an 8.70% Compound Annual Growth Rate (CAGR) from 2025 to 2034, fueled by increasing demand for healthcare professionals and government-backed initiatives like "Mais Médicos".

Afya's historical journey is marked by strategic expansion and operational refinement. The launch of four Mais Medicos campuses in the third quarter of 2022 and subsequent integrations of acquisitions like UNIMA and FCM Jaboatão in late 2023 have consistently contributed to gross margin expansion. A significant operational restructuring in late 2023 and early 2024 streamlined its digital offerings, consolidating medical education content into the Continuing Education segment and renaming its Digital Services to Medical Practice Solutions. This reorganization aimed to unlock synergies, enhance cost management, and boost efficiency across administrative functions, laying a strong foundation for future growth.

Technological Innovation: The Digital Artery of Afya's Ecosystem

At the heart of Afya's integrated strategy lies its robust technological differentiation, which serves as a critical competitive advantage. The company's core technology revolves around proprietary digital platforms designed to enhance learning outcomes and improve clinical decision-making for medical professionals. These platforms include a subscription-based mobile app and website portal that offers tools such as medical calculators, charts, updated content, prescriptions, clinical scores, and laboratory exam information. This technology provides tangible benefits by significantly improving the efficiency and accuracy of health professionals and students.

Afya's digital ecosystem, which reached 302,000 active users by the end of the second quarter of 2025, reflects deep penetration and strong engagement among physicians and medical students across Brazil. The strategic decision to transition from the PEBMED portal to the Afya portal in April 2024, while initially causing a temporary reduction in monthly active users, was a deliberate move to enforce stricter user sign-ups. This allows Afya to gather more detailed user data, which is crucial for leveraging relationships with the pharmaceutical industry and securing B2B contracts. The company's minimal CapEx requirements for initiatives like the ENAMED exams underscore its ability to leverage existing technological assets and curriculum, demonstrating efficient resource allocation for new opportunities. This technological leadership not only strengthens Afya's competitive moat but also directly contributes to its financial performance through recurring subscription revenues and enhanced B2B engagement.

Competitive Positioning and Market Leadership

Afya operates within a dynamic and increasingly competitive Brazilian education landscape, particularly in the medical sector. Key direct competitors include larger, diversified education groups such as Cogna Educação (COGN3), YDUQS Participações (YDUQ3), and Ser Educacional (SEER3), as well as global players like Laureate Education (LAUR). While these competitors offer broad higher education portfolios, Afya distinguishes itself through its specialized focus on medical education and integrated digital health solutions.

Afya's competitive advantage is rooted in its specialized network and proprietary digital technology. Its focused approach in medical education, from undergraduate programs to residency preparation and continuous learning, fosters stronger customer loyalty and potentially higher margins compared to the broader, more generalized offerings of competitors like Cogna. For instance, Afya's emphasis on practical medical training and advanced digital tools for clinical decision-making provides a unique value proposition that rivals like YDUQS, with their more general online platforms, find challenging to replicate. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, Afya's consistent 100% occupancy in medical seats and its ability to pass price increases above inflation suggest a strong market position.

The competitive environment for medical seat intake intensified in the second half of 2025 due to an influx of new approvals and a stable cohort of high school graduates, leading to a reduction in the candidate ratio from 7% to 5%. Despite this, Afya maintained its normal pricing policy with "0 discount," demonstrating pricing power. In the M&A arena, while competitors may engage in cheaper transactions, Afya remains disciplined, prioritizing targets with "good brand, good reputations and good location" to ensure strategic fit and value creation. The company's growing pipeline of M&A targets, coupled with its aim to acquire approximately 200 seats per year, underscores its confidence in disciplined expansion.

Financial Performance and Operational Excellence

Afya's financial performance in the first half of 2025 underscores its operational effectiveness and the strength of its business model. The company reported robust revenue growth of 15% year-over-year, reaching BRL 1,856 million. This growth was primarily driven by a 16% increase in the Undergraduate segment's revenue, totaling BRL 1,642 million, with medicine programs accounting for 86% of this figure. The medical school net average ticket, excluding the UNIDOM acquisition, rose by over 3% year-over-year to BRL 9,140, although this was slightly below inflation due to the impact of FIES discounts on 10% to 15% of students in some campuses.

Profitability saw significant expansion, with adjusted EBITDA climbing 20% year-over-year to BRL 893 million, achieving an impressive margin of 48.1% in the first half of 2025—an all-time high since Afya became publicly traded in 2019. This margin expansion was largely attributed to gross margin improvements in both the Undergraduate and Continuing Education segments, the successful integration of UNIDOM, the maturation of the four Mais Medicos campuses, and enhanced efficiency in selling, general, and administrative (SG&A) expenses through its shared service center. Net income for the six-month period ended June 2025 surged 70% year-over-year to BRL 434 million, reflecting strong operational performance despite the impact of new tax legislation.

Cash flow generation remains a core strength, with operating cash flow growing 15% to BRL 783 million in the first half of 2025, resulting in an operational cash conversion ratio of 88.8%.

Afya's capital structure is solid, characterized by conservative leverage; its net debt, excluding IFRS 16, to the midpoint of 2025 adjusted EBITDA was a healthy 0.97x. The company's net debt also reduced by BRL 194 million to BRL 1,621 million by the second quarter of 2025, even after dividend payments and the FUNIC acquisition, demonstrating disciplined capital allocation.

Outlook and Growth Trajectory

Afya remains confident in its ability to meet its full-year 2025 guidance, a testament to its disciplined execution and strong business fundamentals. Management, however, maintains a conservative stance, particularly due to the seasonality in Continuing Education, where the roadmap for new cohorts primarily unfolds after September. The company's updated 2024 guidance, released in Q2 2024, projected net revenue between R$3.225 billion and R$3.325 billion, and adjusted EBITDA between R$1.375 billion and R$1.475 billion, reflecting confidence from strong first-half results and robust intake processes.

Strategic initiatives continue to drive future growth. The acquisition of FUNIC, contributing an additional 60 medical seats, and the ongoing maturation of existing campuses are expected to bolster the Undergraduate segment. In Continuing Education, the ENAMED exams present a significant opportunity, requiring only marginal CapEx due to Afya's existing assets and curriculum. The Medical Practice Solutions segment is projected to grow around 20% in 2024, aiming for a positive EBITDA contribution margin of 10% to 15%, with aspirations to reach close to 20%. The company's commitment to shareholder value is further evidenced by the approval of a new share repurchase program, authorizing the buyback of up to 4 million Class A shares by December 31, 2026.

Risks and Challenges

Despite its strong performance, Afya faces several pertinent risks. The new tax legislation implementing OECD Pillar Two rules in Brazil, effective January 2025, introduces a minimum effective tax rate of 15% for multinational groups. While Afya recognized two tax deferred assets in the first half of 2025 to reduce its effective tax rate, the long-term impact is expected to converge to 15%. Afya is actively challenging this legislation, arguing it negatively impacts the PROUNI program, which supports over 10,000 students.

The Continuing Education segment's residency journey experienced a notable 29% decrease in students year-over-year in the first half of 2025, attributed to a challenging cycle in late 2024 and a highly competitive landscape. Furthermore, the Medical Practice Solutions segment saw a 9% reduction in monthly active users following the transition to the Afya portal, a strategic decision to gather more detailed user data for B2B engagements. While this is a deliberate trade-off for deeper insights, it highlights the ongoing challenge of user migration and engagement. Long-term concerns regarding market saturation and increased competition in Brazil's rapidly expanding medical education sector could also pressure enrollment and pricing power.

Conclusion

Afya Limited presents a compelling investment thesis, firmly rooted in its leadership within Brazil's growing medical education market and its strategically integrated ecosystem. The company's consistent delivery of strong financial results, marked by robust revenue growth and record profitability margins in the first half of 2025, underscores its operational prowess and predictable business model. Afya's technological differentiation, particularly its digital platforms for medical learning and practice management, provides a significant competitive edge, fostering deep engagement across its vast user base and driving efficiency for healthcare professionals.

While the company faces challenges from evolving tax regulations and an intensifying competitive environment, its proactive management of these risks, coupled with a disciplined capital allocation strategy including share repurchases, reinforces its commitment to long-term shareholder value. With the Brazilian medical education market poised for sustained growth, Afya's proven ability to execute strategic acquisitions, mature its campuses, and innovate its digital offerings positions it favorably to capitalize on future opportunities. Investors seeking exposure to a resilient, high-growth sector with a clear market leader should consider Afya's enduring potential.