Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

<ul>
<li>Numerous media accounts have mentioned that Didi could relaunch its ride-hailing app in China by the end of 2021.</li>
<li>In terms of share price trend, it is starting to form an attractive double bottom pattern, with increasing prices on rising volume. </li>
<li>Our base case valuation of DiDi Global is a target price of $12 per share, which represents a 35% upside from current levels.</li>
</ul>


Numerous media accounts have mentioned that Didi could relaunch its ride-hailing app in China by the end of 2021.
In terms of share price trend, it is starting to form an attractive double bottom pattern, with increasing prices on rising volume. 
Our base case valuation of DiDi Global is a target price of $12 per share, which represents a 35% upside from current levels.


Didi Global - Higher Probability of Relaunching Ride Hailing App in China by the End of 2021

HK/China Equity Long-Short

Osbert Tang, CFA

<p>We highlight that <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>, given its focus on vocational training, is an off-target victim of the government's regulations on the Private Education Sector and the "Double Reduction" policies. We think it will ride on government's latest supportive measures on vocational training; and with its schools providing training in culinary arts, IT &amp; Internet Technology and auto services, China East will benefit from the shortage of skills workers in China. Also, unlike K-12 education, private participation in vocational education is very encouraged by the government. </p><p>China East's good post-COVID recovery can be demonstrated by the sharp rebound in student number and stable tuition fees in 1H21. With 90% of students enrolling in long-term program, it has good revenue visibility. We like its sound financial position - Rmb3.5bn net cash, and consideration of shareholder value - bought back nearly 14m shares in Jul and Aug. While valuations are high in absolute terms, China East is clearly another interesting name in the sector after our preferred play <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>.</p>

We highlight that China East Education (667 HK), given its focus on vocational training, is an off-target victim of the government's regulations on the Private Education Sector and the "Double Reduction" policies. We think it will ride on government's latest supportive measures on vocational training; and with its schools providing training in culinary arts, IT &amp; Internet Technology and auto services, China East will benefit from the shortage of skills workers in China. Also, unlike K-12 education, private participation in vocational education is very encouraged by the government. China East's good post-COVID recovery can be demonstrated by the sharp rebound in student number and stable tuition fees in 1H21. With 90% of students enrolling in long-term program, it has good revenue visibility. We like its sound financial position - Rmb3.5bn net cash, and consideration of shareholder value - bought back nearly 14m shares in Jul and Aug. While valuations are high in absolute terms, China East is clearly another interesting name in the sector after our preferred play China Education Group (839 HK).

China East Education (667 HK): Riding on Government's Push for Vocational Schools

<p>We take the recent newsflow on business development at <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> positively. While the market may still skeptical towards the company due to the sector's regulatory worries, CEG is standing in a better position than many of its peers given its focus on the vocational and higher education segment. In our view, the beaten-down performance of CEG's share price is not justified, and it is an interesting time to look at its long-term promising outlook now.   </p><p>The 58% increase in approval higher education enrollment quota for 2021/2022 academic year, upside from contribution of the newly added Chengdu Jincheng College, support from banks and IFC through provisions of seven-year loan facilities at low pricing, rapid execution of M&amp;A and further potential pipeline acquisitions all lend support to CEG's business prospects amid a turbulent time. Our belief is that at 13.5x PER for FY22, CEG is inexpensively priced relative to growth.</p>

We take the recent newsflow on business development at China Education Group (839 HK) positively. While the market may still skeptical towards the company due to the sector's regulatory worries, CEG is standing in a better position than many of its peers given its focus on the vocational and higher education segment. In our view, the beaten-down performance of CEG's share price is not justified, and it is an interesting time to look at its long-term promising outlook now.   The 58% increase in approval higher education enrollment quota for 2021/2022 academic year, upside from contribution of the newly added Chengdu Jincheng College, support from banks and IFC through provisions of seven-year loan facilities at low pricing, rapid execution of M&amp;A and further potential pipeline acquisitions all lend support to CEG's business prospects amid a turbulent time. Our belief is that at 13.5x PER for FY22, CEG is inexpensively priced relative to growth.

China Education (839 HK): More Flows of Positive Development

Equity Analyst, LightStream Research

Shifara Samsudeen, FCMA, CGMA

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Event-Driven

<p>China’s new rules and regulations in private tutoring have triggered a massive sell-off in the education companies including <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> , <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> and <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> . The new rules announced by Beijing include turning after-school tutoring companies (tutoring on school curriculum) into not-for-profit which would prevent online tutoring platforms from raising foreign capital and at the same time seeking public listing. After-school tutoring is in huge demand in China and soaring tuition fees have become a huge burden on parents and the government of China is attempting to reduce the cost of education in order to encourage couples to have more kids as education accounts for a large share of childcare in China.</p><p>Similarly, private tutoring in India is in huge demand as a large majority of K-12 school students in the country attend after-school tutoring. Known as tuition culture, it has been prevalent in India for decades which supplements the school education of children. In this insight, we examine the private tutoring market in India (including online) and the likelihood of similar directives (to that of China) and how it could impact the fundamentals and valuations of online education platforms in the country.</p>

China’s new rules and regulations in private tutoring have triggered a massive sell-off in the education companies including Gaotu Techedu (GOTU US) , New Oriental Education (EDU US) and TAL Education (TAL US) . The new rules announced by Beijing include turning after-school tutoring companies (tutoring on school curriculum) into not-for-profit which would prevent online tutoring platforms from raising foreign capital and at the same time seeking public listing. After-school tutoring is in huge demand in China and soaring tuition fees have become a huge burden on parents and the government of China is attempting to reduce the cost of education in order to encourage couples to have more kids as education accounts for a large share of childcare in China.Similarly, private tutoring in India is in huge demand as a large majority of K-12 school students in the country attend after-school tutoring. Known as tuition culture, it has been prevalent in India for decades which supplements the school education of children. In this insight, we examine the private tutoring market in India (including online) and the likelihood of similar directives (to that of China) and how it could impact the fundamentals and valuations of online education platforms in the country.

As China EduTech Goes Not-For-Profit Will India’s Promising Alternatives Fill Their Wake?

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

New Oriental Education & Techn / Event-Driven

<p>On Friday 23 July, the 21st Century Business Herald and Bloomberg followed up one <a href="https://www.bloomberg.com/news/articles/2021-07-20/china-aims-to-lower-child-expenses-in-effort-to-boost-birth-rate" target="_blank" rel="noopener">stories</a> which had come out a couple of days earlier (which suggested much more regulation on after-school tutoring businesses), suggesting that China would possibly ban for-profit businesses which tutored China's K-12 students on school curriculum subjects. The same articles Friday suggested no listed businesses would be able to purchase or invest in such businesses, and foreign capital would not be allowed to invest in the businesses.</p>
<p>This was discussed pre-US open in <a href="https://www.smartkarma.com/insights/china-after-school-tutoring-online-education-stocks-crushed-investors-schooled" target="_blank" data-smartkarma-citation="insights:54878" rel="noopener">China After School Tutoring Online Education Stocks Crushed - Investors Schooled</a>. This seemed dramatic, and possibly dire. Stocks in the K-12 education sector in Hong Kong fell dramatically. Stocks listed in the US fell even more. A custom index of 16 names fell nearly 30%. An index of just the three major US-listed names - <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>, <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>, and <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> - was down 60% pre-open.</p>
<p>That wasn't enough as the basket closed 6% lower from there. </p>
<section class="figure">
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<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/220/370/original/Screenshot+2021-07-25+at+6.04.13+PM.png?1627207475" class="editor-image img-responsive" data-smartkarma-image-id="220370"></figure>
<p></p>
</section>
</section>
<p>It looks like even that may not have been enough.</p>
<h3>The NEW News</h3>
<p>On Saturday, the State Council followed up with a <a href="http://www.gov.cn/zhengce/2021-07/24/content_5627132.htm" target="_blank" rel="noopener">document</a><em>"Opinions on Further Reducing the Workload of Students and The Burden of Out-of-School Training in the Compulsory Education Stage"</em></p>
<section class="figure">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/220/382/original/Screenshot+2021-07-25+at+9.31.12+PM.png?1627219895" class="editor-image img-responsive" data-smartkarma-image-id="220382"></figure>
</section>
<p>The Opinion is a wide-ranging polemic with instructions to local governments, school systems, educational authorities, etc to deal with the reduction of "double burden" on kids and parents of school system and after-school tutoring system on the same subjects as taught in the school system. There is lots of content suggesting significant detail on things like homework in regular school, who is to be given how much, how much they are not to do, what school administrators in the public school system should do to organise after-school and summer programs. </p>
<p>There are, of course, the sections about the after-school tutoring businesses - strictly enforcing regulations, ensuring proper qualifications, and severely punishing those institutions which fall short, especially those with a profit incentive. </p>
<p>If I were in that business, I would stop making a profit immediately. I would refund payments for currently in-progress classes so that the only payments related to teacher payments and bare minimum support costs are done. I would provide refunds to anyone who would take them so as to immediately cease the business. </p>
<p>Some businesses may be able to pivot. Some may be liquidation candidates. Some will simply be shut down to take the loss. </p>
<p>But this is a big change, and it has been out there. And it looks like when people did not see it quickly enough, it was decided Something Must Be Done. Now it is going to be done.</p>

On Friday 23 July, the 21st Century Business Herald and Bloomberg followed up one stories which had come out a couple of days earlier (which suggested much more regulation on after-school tutoring businesses), suggesting that China would possibly ban for-profit businesses which tutored China's K-12 students on school curriculum subjects. The same articles Friday suggested no listed businesses would be able to purchase or invest in such businesses, and foreign capital would not be allowed to invest in the businesses.
This was discussed pre-US open in China After School Tutoring Online Education Stocks Crushed - Investors Schooled. This seemed dramatic, and possibly dire. Stocks in the K-12 education sector in Hong Kong fell dramatically. Stocks listed in the US fell even more. A custom index of 16 names fell nearly 30%. An index of just the three major US-listed names - TAL Education (TAL US), Gaotu Techedu (GOTU US), and New Oriental Education (EDU US) - was down 60% pre-open.
That wasn't enough as the basket closed 6% lower from there. 






It looks like even that may not have been enough.
The NEW News
On Saturday, the State Council followed up with a document"Opinions on Further Reducing the Workload of Students and The Burden of Out-of-School Training in the Compulsory Education Stage"



The Opinion is a wide-ranging polemic with instructions to local governments, school systems, educational authorities, etc to deal with the reduction of "double burden" on kids and parents of school system and after-school tutoring system on the same subjects as taught in the school system. There is lots of content suggesting significant detail on things like homework in regular school, who is to be given how much, how much they are not to do, what school administrators in the public school system should do to organise after-school and summer programs. 
There are, of course, the sections about the after-school tutoring businesses - strictly enforcing regulations, ensuring proper qualifications, and severely punishing those institutions which fall short, especially those with a profit incentive. 
If I were in that business, I would stop making a profit immediately. I would refund payments for currently in-progress classes so that the only payments related to teacher payments and bare minimum support costs are done. I would provide refunds to anyone who would take them so as to immediately cease the business. 
Some businesses may be able to pivot. Some may be liquidation candidates. Some will simply be shut down to take the loss. 
But this is a big change, and it has been out there. And it looks like when people did not see it quickly enough, it was decided Something Must Be Done. Now it is going to be done.

China's New After-School Tutoring Policy Is Out - The End of the Line For Many?

China

Gaotu Techedu inc develops educational software. The Company offers online K-12 large class after school tutoring as well as foreign language, professional and other courses. Gaotu Techedu serves students in China

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52-week Range	0.00 - 0.00
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Gaotu Techedu (GOTU US)

Didi Global - Higher Probability of Relaunching Ride Hailing App in China by the End of 2021

There have been numerous media accounts in the past two days that have mentioned that DiDi Global (DIDI US) is likely to relaunch its ride-hailing...

Douglas Kim

China East Education (667 HK): Riding on Government's Push for Vocational Schools

China East should benefit from the government's push on vocational education and its businesses have less regulatory risks. The net cash position...

Osbert Tang, CFA

China Education (839 HK): More Flows of Positive Development

Good enrollment quota growth, confidence from banking community and IFC and rapid execution of M&As are driving FY22 outlook for CEG, and this...

Osbert Tang, CFA

As China EduTech Goes Not-For-Profit Will India’s Promising Alternatives Fill Their Wake?

It seems that India’s edutech sector is poised for more .growth which would possibly make it one of the world’s largest edutech markets

Shifara Samsudeen, FCMA, CGMA

China's New After-School Tutoring Policy Is Out - The End of the Line For Many?

The State Council has now put out its policy for after-school education and private tutoring of school curriculum. But it is bigger than that. This...

Travis Lundy

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