The Zhitong Finance App learned that the Hong Kong stock education sector has been active recently. By the close of February 21, the education sector had risen sharply, with Yuhua Education (06169) and Chuanglian Holdings (02371) rising more than 11% to lead education stocks. According to the news, on the evening of February 8, the Ministry of Education issued the “Regulations on the Administration of Out-of-School Training (Draft for Comments)”. It mentions various aspects, such as extracurricular training for students in compulsory education. Government-guided price management should be implemented in accordance with the law, and provincial people's governments should formulate fee management measures. Fees for other off-campus training shall be reported to the approval authority for the record.
Regarding the publication of this opinion statement, Galaxy Securities stated that the current regulatory policy framework for China's education and training industry is quite complete, the boundaries and framework for standardized development of the industry are clear, and the visibility of policy stability is high. It is expected to dispel market concerns about policy risks in the education sector and increase sector valuation. Considering that this regulation no longer includes high schools in the scope of supervision and classifies academic and non-subject training, the agency believes that education and training companies that focus on new K9 competencies+high school level training will fully benefit from the current industry trend of strong demand and optimized supply.
Guoxin Securities believes that this “Draft for Solicitation of Comments” combines 2 years of practical experience at the grassroots level and is the first administrative regulation issued by the country on the management of out-of-school training. The opinion draft continues the statement that the “double reduction” policy was intended to reduce the burden of compulsory education subject training. The level of supervision is basically the same, and there is no marginal tightening. Furthermore, the classification management rules encourage non-subject training business formats, affirm the transformation results of existing leading education and training institutions, and also point out the direction for the future development of the industry. From the initial “double reduction” policy to the current “Draft for Solicitation of Comments”, the original purpose of the national legislation was not to completely eliminate out-of-school training, but to guide the high-quality development of the out-of-school training industry with a view to creating a good educational ecosystem. Considering the clear and positive attitude of the new policy, the education and training industry is expected to continue to benefit from improved fundamentals and the rebound in valuations driven by sentiment.
In addition to policy recovery, judging from the recently released operating data of some education and training industry companies, they all showed a strong recovery trend.
Take New Oriental as an example. According to the financial report for the second fiscal quarter of fiscal year 2024 (ending November 30, 2023), revenue of US$870 million was US$870 million, an increase of 36.3% over the previous year.
In terms of a better future, according to the unaudited financial report for the third quarter of fiscal year 2024 ending November 30, 2023, the company's net revenue rose from US$233 million in the same period last year to US$374 million in the current quarter, up 60.5% year on year; net loss was US$239.46 million, with a loss of 51.579 million US dollars for the same period last year, narrowing by 53.6% year on year.
In response, Guoxin Securities pointed out that the latest financial reports and operating data from leading education and training companies continue to perform well, and the dividends of improving the competitive landscape of the industry brought about by the double reduction policy are still showing. The broker expects these companies to continue to benefit from this trend.
From the perspective of industry company revenue, Zheshang Securities pointed out that leading education companies are generally showing high growth, and this stems from the education industry's resilient demand combined with significant improvements in the competitive pattern, as well as the expansion of new businesses such as non-subject training, intelligent hardware, and vocational education. Currently, the education industry is still in the early stages of a new round of development. Leading companies have revived their lives, and the growth potential is strong. The agency further pointed out that in the short term, there is a mismatch between supply and demand in the industry, and leading companies “the rest are king.” Looking at the education industry in the medium to long term, there is still plenty of snow, stemming from the demand for “investment” in the future due to rising income levels and intense social competition. With the gradual clarification of education policies, the education industry is currently still in the early stages of a new round of development.
Recently, Daiwa Securities raised its assessment of mainland education stocks from “neutral” to “positive.” The bank also pointed out that investors seem to prefer the post-regulatory recovery of the industry and the improvement of the industry's growth prospects. However, this year's profit surprise, driven by rapid expansion of production capacity and operating leverage, will provide a major catalyst for sector stock prices.
Related concept stocks:
China Oriental Education (00667): In the first half of 2023, the company achieved revenue of 1,953 billion yuan, an increase of about 4% over the previous year. Mainly due to the increase in the number of new students enrolled and the number of new customer registrations from 70,445 in the same period last year to 8,4552, an increase of 20%. The company was mainly affected by the epidemic on long-term student enrollment in the first half of the year, as well as sales expenses and investment from Chef Panda in the first half of the year. The rapid expansion of the school will come to an end in the future. The main expansion is in the beauty industry, and sales expenses are expected to be controlled. It is more flexible as the new campus climbs, the three-year dividend is released, and profits improve.
New Oriental-S (09901): Goldman Sachs notes that New Oriental provides comprehensive education services and makes effective and profitable investments outside the education sector (such as education-related investments), which makes the company's revenue stream more balanced. After completing the fiscal year 2023 business adjustments, New Oriental is still in the early stages of years of large-scale expansion. The brokerage firm predicts that from 2023 to the 2026 fiscal year, New Oriental's compound annual revenue growth rate will reach 25%, and the compound annual growth rate of earnings per share will reach 43%, maintaining a “buy” rating, and the target price is set at HK$71.
China Education Holdings (00839): As a leader in providing high-quality higher and vocational education, the Group's college enrollment volume in China continued to increase dramatically in the 2023/2024 academic year, an increase of about 13,000 over the previous academic year, and an increase of more than 16% over the previous year. Among them, undergraduate credits increased by about 10% and college places increased by about 56%. The Group will be able to provide more students with high-quality education and development opportunities and support national regional development strategies and industrial transformation and upgrading.
Yuhua Education (06169): The company and its subsidiaries mainly provide private formal education services from kindergarten to university non-vocational education in Henan Province, China. The company includes three business divisions: kindergarten, grades 1 to 12 (grades 1-12), and universities.