Higher education: fundamentals & emotional catalytic valuation ushered in repair, the follow-up space is still broad.

Recently, some higher education companies have announced that the number of students who will be promoted to this school in the 2022 / 23 academic year will increase by 70% and 158% compared with the same period last year. Combined with the new high number of applicants for the college entrance examination and stable employment background, the fundamentals of the industry have improved positively. At the same time, the recent repair of Chinese stocks and the gradual introduction of favorable policies in various places (Beijing released the "implementation Plan for promoting the High-quality Development of Vocational Education" on June 6) further catalysed industry sentiment, gradually dispelling previous market pessimistic policy concerns about the plate, and plate valuation ushered in a repair.

In fact, we believe that the direction of sector policy has long been clear, and there is no need to worry too much. With the follow-up for-profit choice landing and the introduction of more detailed policies for the construction of vocational education system, plate valuation is expected to usher in continuous repair.

Vocational training: the demand side is exuberant, the supply side is better along with the resumption of work and production, and the subdivision bibcock with excellent competitiveness is preferred.

The number of college graduates in the class of 2022 reached 10.76 million, an increase of 1.67 million over the same period last year, with fierce competition for employment. at the same time, the unemployment rate of urban research in China rose month by month from January to April in 2022, reaching 6.1 percent in April, the highest since February 2020. In the context of employment difficulties, the demand for vocational training-academic qualifications is expected to increase significantly, but due to the repeated impact of the epidemic in some areas, offline training enrollment and teaching are limited, and the performance of most vocational training companies is affected. With the promotion of resuming work and production after the epidemic, the business of vocational training companies is expected to be carried out in an orderly manner, and the performance is expected to recover quickly under strong demand. Among them, we mainly recommend excellent competitiveness in the segment, abundant cash flow (the company's cash and equivalents + realisable financial assets reached 5 billion yuan by 2021), China Oriental Education, a multi-category vocational education leader with low valuation, and excellent curriculum quality, and develop a sound IT training leader in wisdom education.

Education and training transformation: new business is getting better and is generally undervalued.

After divesting the K9 discipline business, the main head education and training companies (New Oriental Education & Technology Group, TAL Education Group, Gaotu Techedu Inc., youdao) have basically completed the business adjustment, and the new business is gradually improving: New Oriental Education & Technology Group already has a strong business of studying abroad and training for college students, and is expected to maintain its advantages in the future. at the same time, it is also actively exploring the direction of intelligent hardware, educational informatization, live broadcast and so on. Based on its original advantages in teaching, research and technology, TAL Education Group explores into the field of technology and content service providers besides learning services; youdao develops rapidly in the fields of intelligent hardware, adult training and quality, and its business has formed a certain volume; Gaotu Techedu Inc. 's exploration in the field of adults and literacy is also getting more and more effective. With the return of competition to rationality, the profit models of various companies are also being optimized, which is expected to gradually usher in normal profits.

At present, all companies are rich in cash. New Oriental Education & Technology Group / TAL Education Group / Gaotu Techedu Inc. / youdao corresponds to the latest quarter cash and equivalents + short-term investment reaches RMB 279 / 219G 32 / 1.2 billion, (cash and equivalents + short-term investment) / total market capitalization ratio is 142% / 102% / 101% / 20%, most companies' market capitalization is lower than their cash value, considering that the new business of each company is expected to gradually get on track in the future. And create positive operating cash flow, currently there is widespread undervaluation, we believe that the valuation of Jiaopei company is expected to restore more than net asset value.

Risk factors:

Repeated local epidemics led to lower-than-expected enrollment, changes in industry policies, and lower-than-expected increases in tuition fees.

Investment strategy:

After the double reduction, the overall valuation of the education sector has fallen sharply, and there are also pessimistic policy expectations for the non-K9 discipline education sector, while in fact, there are clear incentive policies in the field of vocational education. Recently, under the catalysis of various factors, the market worries about policies have been gradually eliminated, and the valuations of various sectors of education have been repaired.

Looking forward to the follow-up market, we suggest the layout around three major sectors: 1) the Hong Kong stock higher education sector with high performance certainty, undervaluation and high dividend; 2) the vocational training section with marginal recovery; and 3) the transformation effect is showing gradually. Education and training companies with prominent cash value.