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财华盘点|2021年教育行业回顾:这个冬天有点儿冷!山花烂漫何时归?

Caihua Inventory | 2021 Education Industry Review: This winter is a bit cold! When will the mountains full of flowers return?

財華社 ·  Dec 29, 2021 15:26

2021 has come to an end. If I had to say which industry in the capital market made shareholders “most concerned” this year, it would be education stocks.

The century-year plan is based on education. Education is one of the industries most affected by domestic policies. This year, as a major year for domestic education reform, the “Civil Promotion Law” and the “Double Reduction Policy” were implemented one after another, causing the entire industry to experience the strongest shock in history. This massive shock has even left some market segments “lying on their feet.”

Layoffs, thunderstorms, shutdowns, transformation, cross-border, etc. made up popular words in the education industry in 2021. The industry is moving forward towards true public welfare attributes, which can be described as a huge miscalculation for the capital that once competed to pour into the education industry. 2021 was also a cyclical trough for the education industry.

Capital has been drastically withdrawn, and stock prices in segmented segments have almost “collapsed across the board”

The domestic education industry is a huge and refined market. Looking at companies currently listed on the Hong Kong, A and US stock markets, the education market is mainly divided into four categories: K12 education, private K12 education, private higher education, and vocational education.

In order to regulate the domestic compulsory education market and reduce the burden on primary and secondary school students, the country intensively introduced various strict policies this year, mainly targeting the out-of-school training market and private compulsory education. According to the timeline, there are three main items:

On May 14, the “Civil Promotion Law” was promulgated, making important provisions on private K12 education enterprises related transactions, group operation of schools, foreign investment access, online education, protection of the rights and interests of teachers and students, and enrollment management;

On June 15, in order to undertake the management of out-of-school education and training for primary and secondary school students (including kindergarten children) and set a standardized management policy for out-of-school education and training, the Ministry of Education established the Department for the Supervision of Out-of-School Education and Training;

On July 24, the “Opinions on Further Reducing the Work Burden and Out-of-School Training Burden of Students in Compulsory Education” (“Double Reduction Policy” for short) was issued. The purpose is to continuously regulate out-of-school training (including online training and offline training) and effectively reduce the excessive work burden and out-of-school training burden of students in compulsory education.

These few policies this year are the strictest in history for the K12 sector. The growth logic of the K12 sector was completely broken, and the K9 out-of-school training market was directly “frozen.”

As the policy environment gradually went from implementation to implementation, not only K12 education, including vocational education and higher education sectors, was also deeply affected in the capital market, and a major capital retreat was staged during the year.

During the year, the stock prices of K12 Education and Training listed companies completely collapsed, and many funds fled one after another. At the same time, stocks such as Education Technology, Gaodu, Head Education, and Good Future plummeted by more than 90%, and the market was in mourning. Private K12 education companies were also not spared. Shares such as Guangzheng Education (06068.HK), Chengshi Wai Education (01565.HK), and Tianli Education (01773.HK) all fell more than 70%, and most companies became immortal stocks.

It is worth noting that although private higher education and vocational education were not impacted by the “Civil Promotion Law” and the “Double Reduction Policy,” they were also “shaking” due to changes in the logic of the entire industry, and in the end they were unable to escape the sharp decline.

During the year, the stock prices of the vast majority of private higher education enterprises and vocational education enterprises experienced double-digit declines, but the overall decline was less severe compared to the K12 sector, and individual companies' stock prices also experienced double-digit increases.

The disastrous situation in the entire market has made many retail investors experience the cruelty of the capital market, and has also caused many professional investment institutions to lose heavily. Take the Bosch Global China Education (QDII-ETF) Fund as an example. The fund was established in early June this year. As of December 28, this fund had only been issued for more than 6 months. The net unit value was only 0.454 yuan, with a range drop of 52%, making it the worst fund in history.

K12Education: How to break a cocoon?

In fact, in this round of the big bear market in the K12 market, the worst are not retail investors or investment institutions, but industry participants.

In 2020 and 2021, for K12 education and training companies, just like the stock price of Tianfou staged, glory and loneliness were often only instantaneous.

In 2020, fueled by the epidemic and the support of capital, K12 education, which mainly focuses on the online education model, entered the first year of the outbreak. Online education platforms such as New Oriental (09901.HK) and Gaoyu Heihao Future launched advertising campaigns to seize the market quickly in order to seize the huge number of students who are tutoring outside of school in China.

Gaotu Group is one of the most aggressive companies. In fiscal year 2020, the company's marketing expenses reached 7.12 billion yuan, a year-on-year increase of more than four times. You need to know that in 2020, less than 20% of the more than 4,000 A-share listed companies had revenue exceeding 7.1 billion yuan. You can see how crazy online education companies are.

Huge marketing expenses also led to Gaotu's rapid expansion. Revenue soared 2.4 times that year, and the number of people paying for K12 regular price courses was 5.429 million, a sharp increase of 117.3% over the previous year. However, due to huge expenses, Gaotu Group incurred huge losses of 1,393 million yuan that year.

These blindly expanding enterprises have also been outraged by some media for “sales anxiety,” “capital encroachments,” and “barbaric growth.” Most people also think that the industry is already in serious internal trouble and needs to be rectified.

The domestic policy for K12 out-of-school training has never stopped. Against this background, the double reduction policy came into effect in July of this year. The industry changed overnight, and those once dazzling leading companies instantly ushered in the darkest hour.

The purpose of the double reduction policy is to reduce the burden on primary and secondary schools and give children happiness. Important rules include: no new subject education and training institutions will be approved; subject education institutions will not be funded or capitalized; teaching will be prohibited on statutory holidays such as Saturdays and Sundays; subject fees will be included in government guidance prices; and all will become non-profit institutions. The plan will take effect by December 31, 2021.

For this reason, K12 out-of-school training companies have had to “break their arms” one after another. Companies such as New Oriental, Good Future, and High School all announced earlier that they would withdraw from the K12 business before the end of the year, adjust the direction of enterprise development and shift to fields such as vocational education and quality education, hoping to be reborn after a short period of severe pain.

For example, after New Oriental Online (01797.HK) withdrew from the primary and secondary school business before the end of November, it has now begun to set up hardware business, vocational education, and agricultural aid services, and its stock price has recently bottomed out.

PrivateK12Education: When is the “slimming transformation” underway?

Private K12 education refers to private education that provides preschool to high school education. The implementation of the Public Promotion Law is a strict rectification of this market.

The People's Promotion Law states that no social organization or individual may control private schools implementing compulsory education or non-profit preschool education through mergers, acquisitions, agreement control, etc.; private schools implementing compulsory education shall not trade with interested parties. The Promotion Law came into effect on September 1 this year.

This means that private compulsory education schools cannot be commercialized, or listed companies will be divested. After mergers, acquisitions, and agreement control activities of K9 schools and non-profit kindergartens are clearly prohibited by the policy, the future growth of related enterprises will also come more from endogenous growth than from extended acquisitions and integration.

There are not many private K12 education enterprises in the capital market; there are less than 10. Currently, Maple Leaf Education (01317.HK), Guangzheng Education, and Yuhua Education (06169.HK) have revealed their first fiscal year reports after the implementation of the “Civil Promotion Law”. Judging from the fiscal year reports, these companies have also begun to save themselves due to policy influence.

Among them, Maple Leaf Education divested K9 schools and preschool education, causing a one-time loss of 2,906 million yuan. After divesting the business restricted by the “Promotion of the People's Law”, Maple Leaf Education plans to transform into general high schools, online language education, and school catering.

Guangzheng Education and Yuhua Education also divested K12 schools and K9 and preschool education businesses respectively, resulting in losses of 2,056 billion yuan and 1.04 billion yuan respectively, and made strategic adjustments to non-K12 business directions.

Private higher education: driven by market sentiment, not hampering high growth attributes

Looking back at education industry policies since this year, the private higher education industry has not been hit by major adverse policies.

The “Civil Promotion Law”, which came into effect this year, cuts all language targeting non-profit private schools, such as the operation of private higher education groups, mergers and acquisitions, agreement control, etc., and at the same time allows them to carry out three public-related transactions, indicating that in the future, private higher education enterprises will have no policy barriers to self-construction and acquisition. It can be said that the policy barriers to private higher education have been removed, making it one of the most certain fields in the education industry segment.

On the contrary, the policy is more encouraging for private higher education, and in line with the People's Promotion Law, the private higher education industry can create more opportunities for further education and can provide wider conditions for students to receive higher education.

Regarding the collective decline in private higher education stock prices this year, Caihua believes that mainly the haze of the K12 education market has spread to the private higher education market.

Higher education is one of the tracks in the education industry. At a stage where the overall investment sentiment in the industry is sluggish, its valuation will obviously be suppressed by market sentiment, causing the stock prices of related companies to follow suit. Another factor is that most regional governments have not yet introduced rules on the selection of private higher education enterprises, and the market is concerned that private higher education enterprises have potential policy risks.

However, at a time when market sentiment was not released, some higher education companies revealed beautiful annual financial reports, and the industry's “epitaxial mergers and acquisitions+endogenous growth” growth logic remained unchanged.

Looking at the 11 higher education stocks that have published their fiscal year reports, in fiscal year 2021 (the year ending August 31, 2021), most companies achieved rapid growth by relying on the merger of foreign acquisition targets, as well as inclusive development methods such as higher tuition fees, expansion, and the relocation of independent colleges.

It is easy to see that higher education enterprises have a high degree of certainty and growth at the same time, and have excellent fundamentals. However, dragged down by market sentiment, higher education stock valuations are generally at historically low levels. For example, the current price-earnings ratio PE (TTM) of the new Higher Education Education (02001.HK), which doubled its fiscal year performance, is only 7.22 times, so there is clearly room for improvement.

Vocational education: the 100 billion race track, the best competes

Like higher education, the vocational education market is not only strongly supported by policies, but there is also huge room for market growth. As one of the important components of China's industrial upgrading, vocational education is in line with the general direction of the country's development strategy.

China's economy is entering a critical period of high-quality growth. This requires upgrading the industry, and industrial upgrading is inseparable from the support of senior technical talents. Cultivating highly skilled talents requires the support of a complete vocational education system. Overseas Germany and Japan also have mature vocational education systems in the process of industrial upgrading.

According to Ai Media Consulting data, China's vocational education market reached 208.8 billion yuan in 2020, but it did not reach half of the K12 education and training market size. Aiming at older age groups and a broader market, the vocational education market is expected to continue to grow rapidly in the future.

After the double reduction, the domestic vocational education market became extremely bustling. These include investors who plan to quit the education industry, as well as participants in the K12 education market, “coveted” the vocational education market after the policy was implemented. According to enterprise survey data, in the first three quarters of 2021, there were 33 financing incidents on the vocational education circuit, an increase of 94.1% over the previous year; the total amount of disclosed financing exceeded 5.30 billion yuan, an increase of 206.4% over the previous year.

Meanwhile, leading companies that have just broken away from the K12 education market have also taken the lead in vocational education, and the competitive environment in the market is becoming more and more intense.

Currently, companies including New Oriental, Good Future, Gaotu, and Dao have all announced changes in the direction of vocational education. The fields covered include popular categories such as public examinations, postgraduate studies, and language training. Chinese public education (002607.SZ), which is the “first stock in the public examination”, is clearly being watched by latecomers.

China Public Education mentioned in its report for the third quarter of this year that due to major changes in the external and internal environment of the industry, the company's performance experienced phased losses, reaching 891 million yuan, and revenue also fell 15.3% year-on-year. Meanwhile, due to credit disclosure violations, China Public Education was investigated by the Securities Regulatory Commission. The stock price fell at an accelerated pace, and the market value of over 160 billion yuan went up in smoke during the year.

The boom in vocational education is coming, and the market will become more and more crowded. Weak growth in public education in China indicates that competition in the industry may heat up in the future, and that money burning wars may reoccur.

Summary:At the end of the year, education stocks were still unable to reverse the trend, and the index's performance was weak. The impact of the Popular Promotion Act and the double reduction policy is still affecting market investors' sentiment.

Private K12 education enterprises urgently need to break out of their cocoon, and at the same time, the path of transformation is also full of hardships. Market sentiment for private higher education needs to subside, and the logic of high market growth remains unchanged. Vocational education, on the other hand, has entered a new stage of competition, and the industry is full of new opportunities.

Author: Far Far Away

The translation is provided by third-party software.


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