HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

The China Private Education Sector presents an exciting growth story, riding on the increase in spending on education, rise in demand for quality education, support from local governments for private investments and increase in acceptance towards online delivery mode, among others. These positive factors, however, are balanced by the decrease in birth rates and the tight regulatory regime. Despite so, we continue to see good prospects given that earnings growth will remain ahead of the overall market by significant magnitude. Meanwhile, valuations have already returned to more reasonable levels, with investment value started to emerge on some names.Companies in the sector have different focuses, including K-12 education, higher education, vocational education, tutoring (online) and tutoring (online and offline), and we have to be very selective. We prefer companies that focus on higher education which face lower regulatory risks, have a clear defined expansion strategy and specialise in a niche market segment. Out of the ten companies covered in this Smartkarma Original, we put forward <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>, <a href="https://www.smartkarma.com/entities/tianli-education-internation" target="_blank" data-smartkarma-citation="entities:27210:1" rel="noopener">Tianli Education (1773 HK)</a> and <a href="https://www.smartkarma.com/entities/china-yuhua-education" target="_blank" data-smartkarma-citation="entities:23627:1" rel="noopener">China Yuhua Education (6169 HK)</a> as our top picks.<h2>What's Original?</h2>This Smartkarma Original takes an in-depth analysis on 10 companies in the Private Education Sector in China, covering stocks listed in the HKEx, NYSE, Shenzhen Stock Exchange as well as dual listings. In the A-share space, we cover <a href="https://www.smartkarma.com/entities/wuhu-yaxia-automobile-corp" target="_blank" data-smartkarma-citation="entities:9979:1" rel="noopener">Offcn Education Technology (002607 CH)</a>, which is sizeable (market cap of almost HK$210bn) and with unique exposure to the civil servants recruitment examination training.Besides addressing the key evolving trends of the industry and the all-important regulatory issues, we also touched on the private funding aspects for some prominent unlisted companies and the IPO trends of the industry. Where appropriate, we share some of our on-ground experiences with the aim to provide a closer feel on the industry and companies. We hope this Smartkarma Original will be a comprehensive and updated reference for China's Private Education Sector.

The China Private Education Sector presents an exciting growth story, riding on the increase in spending on education, rise in demand for quality education, support from local governments for private investments and increase in acceptance towards online delivery mode, among others. These positive factors, however, are balanced by the decrease in birth rates and the tight regulatory regime. Despite so, we continue to see good prospects given that earnings growth will remain ahead of the overall market by significant magnitude. Meanwhile, valuations have already returned to more reasonable levels, with investment value started to emerge on some names.Companies in the sector have different focuses, including K-12 education, higher education, vocational education, tutoring (online) and tutoring (online and offline), and we have to be very selective. We prefer companies that focus on higher education which face lower regulatory risks, have a clear defined expansion strategy and specialise in a niche market segment. Out of the ten companies covered in this Smartkarma Original, we put forward China Education Group (839 HK), Tianli Education (1773 HK) and China Yuhua Education (6169 HK) as our top picks.What's Original?This Smartkarma Original takes an in-depth analysis on 10 companies in the Private Education Sector in China, covering stocks listed in the HKEx, NYSE, Shenzhen Stock Exchange as well as dual listings. In the A-share space, we cover Offcn Education Technology (002607 CH), which is sizeable (market cap of almost HK$210bn) and with unique exposure to the civil servants recruitment examination training.Besides addressing the key evolving trends of the industry and the all-important regulatory issues, we also touched on the private funding aspects for some prominent unlisted companies and the IPO trends of the industry. Where appropriate, we share some of our on-ground experiences with the aim to provide a closer feel on the industry and companies. We hope this Smartkarma Original will be a comprehensive and updated reference for China's Private Education Sector.

China Private Education: This Is Where the Future Lies

Global Special Situations & Strategy, SR Services Ltd

David Lepper

Global Special Situations & Strategy

SR Services Ltd

SR Services provides Strategic Knowledge and Solutions services for Family Offices and Corporate Business. 

We deliver this via advisory services, strategic planning, opportunity analysis/sourcing, as well as solution implementation. 

Whilst, we create intellectual discipline and operational leverage for your projects or daily activities, our ultimate objective is to empower whilst enhancing your decision making. 

Strategic Knowledge and Solutions

Cross Asset Strategy

Growth as a style has been the “norm” for years, is the “norm” about to end? The continued strategies by Central Bank’s towards a “lower for longer stance around interest rates”, extended the underperformance of value for most of 2020. However, with the value/growth investment style ratio at 20-year lows, we present 27 names which hold characteristics worthy of further review.

Growth as a style has been the “norm” for years, is the “norm” about to end? The continued strategies by Central Bank’s towards a “lower for longer stance around interest rates”, extended the underperformance of value for most of 2020. However, with the value/growth investment style ratio at 20-year lows, we present 27 names which hold characteristics worthy of further review. 

Screening the Silk Road: Q1 2021 All Cap Screening - Free Cashflow (FCF)

The overall expectation at the start of H1 2019, was that following a decade of seeing growth as the key focus (as ultra-accommodative global monetary policies provided cheap capital), the world would see a return to value. However, as we sit amid H1 2020 and Covid-19 expectation has not materialised.As part of the Covid-19 response, Interest rates are decreasing en-masse without a clear time frame on their reversal, investors in value orientated stocks are now being forced to adjust further to the new fiscal environment. However, as the Asia Pacific value / growth ratio nears a minus 2 standard deviation to the longer-term average, the probability of a reversal increases.We select 16 key names primed to continue our out performing screen, which delivered on average a 120bps of out performance since October 2019 <a href="https://www.smartkarma.com/insights/screening-the-silk-road-small-mid-cap-free-cash-flow" target="_blank" data-smartkarma-citation="insights:28877" rel="noopener">Screening the Silk Road: (Small-)Mid Cap Free Cash Flow</a> .

The overall expectation at the start of H1 2019, was that following a decade of seeing growth as the key focus (as ultra-accommodative global monetary policies provided cheap capital), the world would see a return to value. However, as we sit amid H1 2020 and Covid-19 expectation has not materialised.As part of the Covid-19 response, Interest rates are decreasing en-masse without a clear time frame on their reversal, investors in value orientated stocks are now being forced to adjust further to the new fiscal environment. However, as the Asia Pacific value / growth ratio nears a minus 2 standard deviation to the longer-term average, the probability of a reversal increases.We select 16 key names primed to continue our out performing screen, which delivered on average a 120bps of out performance since October 2019 Screening the Silk Road: (Small-)Mid Cap Free Cash Flow . 

Screening the Silk Road: (Small) Mid Cap Free Cash Flow

Founder and Strategist, Entext Economics & Strategy

Sean Maher

Founder and Strategist

Entext Economics & Strategy

Entext provides institutional investors with distinctive, actionable asset allocation and thematic research, which typically challenges the market consensus. Our clients range from credit, equity and multi-asset hedge and pension funds to family offices and sovereign funds. 
 
We focus on identifying key inflection points in macro data and relative asset performance amid the 'groupthink'  and confirmation bias that characterizes most investment bank analysis.

Macro Driven Investment Insight

I began my recent Asia trip speaking at an investor conference in Vietnam, where I focused on the shift in the EM development model toward value added services as ubiquitous smartphones and broadband created a ‘leapfrog’ effect plugging infrastructure deficits (not just physical, but also including weak institutions). Services only came to dominate growth in developed economies from the 1970s as manufacturing share declined at a relatively high level of per capita income, but for today’s EMs it is happening at a much lower threshold and that trend has been very apparent at the granular level on my week-long China visit and should be borne in mind when parsing the macro data. As covered previously, it seems very likely that services activity is being systematically underestimated in the China GDP data given its ‘kick the tyres’ statistical bias.

I began my recent Asia trip speaking at an investor conference in Vietnam, where I focused on the shift in the EM development model toward value added services as ubiquitous smartphones and broadband created a ‘leapfrog’ effect plugging infrastructure deficits (not just physical, but also including weak institutions). Services only came to dominate growth in developed economies from the 1970s as manufacturing share declined at a relatively high level of per capita income, but for today’s EMs it is happening at a much lower threshold and that trend has been very apparent at the granular level on my week-long China visit and should be borne in mind when parsing the macro data. As covered previously, it seems very likely that services activity is being systematically underestimated in the China GDP data given its ‘kick the tyres’ statistical bias.

China Trip Notes - Education Spend On Korean Path…

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

YTD sideways congestion for the MSCI ACWI ex-US and an intact downtrend for the MSCI EM index continue to point to a risk-off environment for international equity markets, and supports our neutral outlook. We continue to recommend avoiding broad indexed exposure in favor of selectivity. In today’s report we highlight actionable country- and Sector-specific themes within Norway, India, Japan and Australia.

YTD sideways congestion for the MSCI ACWI ex-US and an intact downtrend for the MSCI EM index continue to point to a risk-off environment for international equity markets, and supports our neutral outlook. We continue to recommend avoiding broad indexed exposure in favor of selectivity. In today’s report we highlight actionable country- and Sector-specific themes within Norway, India, Japan and Australia.

Global Ex-U.S. & EM Continue to Point to Risk-Off Environment

China

China Maple Leaf Educational Systems operates bilingual private and preschools, offering K-12 education with A-level, International Baccalaureate, and Maple Leaf World School curriculums. The company also provides educational consultancy, school uniforms, educational books, and catering services. It was founded in 1995 and is headquartered in Shenzhen, China.

China Maple Leaf Educational Systems (1317 HK)

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China Maple Leaf Educational Systems (1317 HK)

China Private Education: This Is Where the Future Lies

Profit growth at China Private Education Sector will speed ahead and outperform overall market significantly. With valuations retreated to more...

Osbert Tang, CFA

Screening the Silk Road: Q1 2021 All Cap Screening - Free Cashflow (FCF)

With the value/growth investment style ratio at 20-year lows, we present 27 names which hold characteristics worthy of further review.

David Lepper

Screening the Silk Road: (Small) Mid Cap Free Cash Flow

The overall expectation at the start of H1 2019, was that following a decade of seeing growth as the key focus (as ultra-accommodative global...

David Lepper

China Trip Notes - Education Spend On Korean Path…

I began my recent Asia trip speaking at an investor conference in Vietnam, where I focused on the shift in the EM development model toward value...

Sean Maher

Global Ex-U.S. & EM Continue to Point to Risk-Off Environment

YTD sideways congestion for the MSCI ACWI ex-US and an intact downtrend for the MSCI EM index continue to point to a risk-off environment for...

Vermilion Research

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