HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<ul>
<li>The 42% collapse in share price of <a href="https://www.smartkarma.com/entities/china-education-group-holdin" target="_blank" data-smartkarma-citation="entities:18218:1" rel="noopener">China Education Group (839 HK)</a> (CEG) seems to be overreaction to the speculated regulatory measures which we think many of them are counter-intuitive.</li>
<li>These measures center around the legality of Variable Interest Entity, ban on future M&amp;As, ownership of school assets and prohibition of increase in tuition fee at will.</li>
<li>Higher education, unlike after school tutoring, supports government policy, lightens governments' financial pressure and enhances common prosperity; and CEG remains the best play on this angle. </li>
</ul>


The 42% collapse in share price of China Education Group (839 HK) (CEG) seems to be overreaction to the speculated regulatory measures which we think many of them are counter-intuitive.
These measures center around the legality of Variable Interest Entity, ban on future M&amp;As, ownership of school assets and prohibition of increase in tuition fee at will.
Higher education, unlike after school tutoring, supports government policy, lightens governments' financial pressure and enhances common prosperity; and CEG remains the best play on this angle. 


China Education Group (839 HK): Further Regulatory Headwinds?

Thematic (Sector/Industry)

Share price of the China Education Sector stocks, particularly the US listed online education ones, are hit hardest on Friday amid the rumoured release of extremely stringent government regulatory changes. The CCPC and State Council official announcement was made on Saturday, and basically removed the survival of online and curriculum-related after-school tutoring classes for Pre-K and compulsory education grades. <a href="https://www.smartkarma.com/entities/new-oriental-education-tech-grp-adr" target="_blank" data-smartkarma-citation="entities:531:1" rel="noopener">New Oriental Education (EDU US)</a>, <a href="https://www.smartkarma.com/entities/tal-education-group" target="_blank" data-smartkarma-citation="entities:1124:1" rel="noopener">TAL Education (TAL US)</a> and <a href="https://www.smartkarma.com/entities/gaotu-techedu-inc" target="_blank" data-smartkarma-citation="entities:28069:1" rel="noopener">Gaotu Techedu (GOTU US)</a> all pledged to support the decisions on Saturday night via Weibo.We believe the best way to position in the sector is to focus on higher and vocational education sub-segments. In this regard, <a href="https://www.smartkarma.com/entities/china-education-group-holdin" target="_blank" data-smartkarma-citation="entities:18218:1" rel="noopener">China Education Group (839 HK)</a> is best positioned given its pure exposure in this market and nil exposure to K-12 schools (online/offline). The 26.3% drop in share price from the peak provides an attractive entry point, in our view. Among the three online education companies, <a href="https://www.smartkarma.com/entities/new-oriental-education-tech-grp-adr" target="_blank" data-smartkarma-citation="entities:531:1" rel="noopener">New Oriental Education (EDU US)</a> looks comparatively safer due to its buffer from other businesses, but we would warn against the extreme risks associated with bottom-fishing this name.

Share price of the China Education Sector stocks, particularly the US listed online education ones, are hit hardest on Friday amid the rumoured release of extremely stringent government regulatory changes. The CCPC and State Council official announcement was made on Saturday, and basically removed the survival of online and curriculum-related after-school tutoring classes for Pre-K and compulsory education grades. New Oriental Education (EDU US), TAL Education (TAL US) and Gaotu Techedu (GOTU US) all pledged to support the decisions on Saturday night via Weibo.We believe the best way to position in the sector is to focus on higher and vocational education sub-segments. In this regard, China Education Group (839 HK) is best positioned given its pure exposure in this market and nil exposure to K-12 schools (online/offline). The 26.3% drop in share price from the peak provides an attractive entry point, in our view. Among the three online education companies, New Oriental Education (EDU US) looks comparatively safer due to its buffer from other businesses, but we would warn against the extreme risks associated with bottom-fishing this name.

China Private Education: How to Position After the Regulatory Crackdown?

<ul>
<li>
<a href="https://www.smartkarma.com/entities/china-education-group-holdin" target="_blank" data-smartkarma-citation="entities:18218:1" rel="noopener">China Education Group (839 HK)</a> has turned more attractive after a valuation retreat and the return of reported and adjusted net profit to a positive trend in its 1H24 result.</li>
<li>Increase in the proportion of undergraduate studies, a better subject specialisation mix, higher accommodation revenue, and a rise in international education will drive unit student revenue.</li>
<li>More capacity upgrades will allow for a steady increase in student enrollment. Management expects adjusted EBITDA margin to stay stable in the next few years.</li>
</ul>



China Education Group (839 HK) has turned more attractive after a valuation retreat and the return of reported and adjusted net profit to a positive trend in its 1H24 result.
Increase in the proportion of undergraduate studies, a better subject specialisation mix, higher accommodation revenue, and a rise in international education will drive unit student revenue.
More capacity upgrades will allow for a steady increase in student enrollment. Management expects adjusted EBITDA margin to stay stable in the next few years.


China Education Group (839 HK): On Balance, Worth a Bet Now

<ul>
<li>The announcement of "Draft for Comments on the Regulations on the Management of off-campus Training" has led to a 43.6% rebound of the education sector from the 2024 trough.</li>
<li>The "Draft" has cleared regulatory worries on after-school tutoring of high school students and non-academic subjects. For higher education space, we like <a href="https://www.smartkarma.com/entities/china-east-education-holdings" target="_blank" data-smartkarma-citation="entities:27843:1" rel="noopener">China East Education (667 HK)</a>. </li>
<li>
<a href="https://www.smartkarma.com/entities/new-oriental-education-techn" target="_blank" data-smartkarma-citation="entities:32210:1" rel="noopener">New Oriental Education &amp; Techn (9901 HK)</a>, <a href="https://www.smartkarma.com/entities/tal-education-group" target="_blank" data-smartkarma-citation="entities:1124:1" rel="noopener">TAL Education (TAL US),</a> and <a href="https://www.smartkarma.com/entities/gaotu-techedu-inc" target="_blank" data-smartkarma-citation="entities:28069:1" rel="noopener">Gaotu Techedu (GOTU US)</a> are the most direct beneficiaries of the "Draft".</li>
</ul>


The announcement of "Draft for Comments on the Regulations on the Management of off-campus Training" has led to a 43.6% rebound of the education sector from the 2024 trough.
The "Draft" has cleared regulatory worries on after-school tutoring of high school students and non-academic subjects. For higher education space, we like China East Education (667 HK). 

New Oriental Education &amp; Techn (9901 HK), TAL Education (TAL US), and Gaotu Techedu (GOTU US) are the most direct beneficiaries of the "Draft".


China Private Education: Trigger for the Sharp Rebound, and What Follows......

Asia Pac IPO & Placement Research, China biotech, Aequitas Research

Ke Yan, CFA, FRM

Asia Pac IPO & Placement Research, China biotech

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Quantitative Analysis

<ul>
<li>We analyze the weekly Hong Kong Connect flows with our data engine for holding position as of February 9th.</li>
<li>The top stocks by inflows and outflows were tabulated for all market, HSCEI, mid cap and s/mid cap groups.</li>
<li>We highlight the weekly Hong Kong connect flows for Tencent.</li>
</ul>


We analyze the weekly Hong Kong Connect flows with our data engine for holding position as of February 9th.
The top stocks by inflows and outflows were tabulated for all market, HSCEI, mid cap and s/mid cap groups.
We highlight the weekly Hong Kong connect flows for Tencent.


Hong Kong Connect Flows (Feb 9th): Tencent

China

China East Education Holdings Limited provides vocational training educational services. The Company offers culinary education, internet technology education, automotive education, and other services. China East Education Holdings provides services in China.

Price Gauge
52-week Range	0.00 - 0.00
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China East Education (667 HK)

China Education Group (839 HK): Further Regulatory Headwinds?

Regulatory speculations have beaten down CEG but may concerns are counter-intuitive and share price has over-reacted. Private participation in...

Osbert Tang, CFA

China Private Education: How to Position After the Regulatory Crackdown?

Focus on higher and vocational education sub-segments is the best position amid regulatory crackdown. For online players, New Oriental looks more...

Osbert Tang, CFA

China Education Group (839 HK): On Balance, Worth a Bet Now

China Education became more attractive as net profit returned to a positive trend in 1H24. Higher revenue per student and an increase in student...

Osbert Tang, CFA

China Private Education: Trigger for the Sharp Rebound, and What Follows......

The "Draft for Comments" of regulations on after-school tutoring has supported the rebound of the education sector. China East Education, New...

Osbert Tang, CFA

Hong Kong Connect Flows (Feb 9th): Tencent

We have analyzed southbound Hong Kong connect flows in the past week and highlighted Hong Kong connect flows for Tencent.

Ke Yan, CFA, FRM

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

China Education Group (839 HK): Further Regulatory Headwinds?

Regulatory speculations have beaten down CEG but may concerns are counter-intuitive and share price has over-reacted. Private participation in...

Osbert Tang, CFA

China Private Education: How to Position After the Regulatory Crackdown?

Focus on higher and vocational education sub-segments is the best position amid regulatory crackdown. For online players, New Oriental looks more...

Osbert Tang, CFA

China Education Group (839 HK): On Balance, Worth a Bet Now

China Education became more attractive as net profit returned to a positive trend in 1H24. Higher revenue per student and an increase in student...

Osbert Tang, CFA

China Private Education: Trigger for the Sharp Rebound, and What Follows......

​The "Draft for Comments" of regulations on after-school tutoring has supported the rebound of the education sector. China East Education, New...

Osbert Tang, CFA

Hong Kong Connect Flows (Feb 9th): Tencent

We have analyzed southbound Hong Kong connect flows in the past week and highlighted Hong Kong connect flows for Tencent.

Ke Yan, CFA, FRM

The "Draft for Comments" of regulations on after-school tutoring has supported the rebound of the education sector. China East Education, New...