HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

<ul>
<li>Global EdTech venture funding surged 29% YoY to US$20.8bn in 2021. China saw c.75% YoY decline in EdTech venture funding but India recorded over 60% growth.</li>
<li>Into 2022, we expect EdTech spending and market will continue to grow, venture funding becoming more selective and Asia and workforce are the fastest growing markets.</li>
<li>China stays weak in 1H22 and India will thrive. India has 4 new unicorns in 2021 while none for China. We stick to higher education, not EdTech (tutoring) in China.</li>
</ul>


Global EdTech venture funding surged 29% YoY to US$20.8bn in 2021. China saw c.75% YoY decline in EdTech venture funding but India recorded over 60% growth.
Into 2022, we expect EdTech spending and market will continue to grow, venture funding becoming more selective and Asia and workforce are the fastest growing markets.
China stays weak in 1H22 and India will thrive. India has 4 new unicorns in 2021 while none for China. We stick to higher education, not EdTech (tutoring) in China.


Asia EdTech and China Education: An Update

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?

Hope Education Group Co Ltd / Equity Bottom-Up

<ul>
<li>Following share price plunge even with decent FY21 result, most of the risks for <a href="https://www.smartkarma.com/entities/hope-education-group-co-ltd" target="_blank" data-smartkarma-citation="entities:27321:1" rel="noopener">Hope Education Group (1765 HK)</a> have been released, but its return profile looks more interesting now.</li>
<li>We see bright spots including good cash flow, solid financial position, positive business outlook, new stock option scheme and limited regulatory exposure the key investment merits. </li>
<li>Valuations appear undemanding at 10.4x and 8.4x PERs for FY21 and FY22. They are at premium to <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> but discount to <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>. </li>
</ul>


Following share price plunge even with decent FY21 result, most of the risks for Hope Education Group (1765 HK) have been released, but its return profile looks more interesting now.
We see bright spots including good cash flow, solid financial position, positive business outlook, new stock option scheme and limited regulatory exposure the key investment merits. 
Valuations appear undemanding at 10.4x and 8.4x PERs for FY21 and FY22. They are at premium to China Yuhua Education (6169 HK) but discount to China Education Group (839 HK). 


Hope Education (1765 HK): Hopeful or Hopeless?

<ul>
<li>
<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> has significantly cleaned up its K-9 business by deconsolidated from FY21 result with a Rmb1.04bn one-off losses. Reported profit, however, still reached Rmb824.5m. </li>
<li>The continuing business achieved a profit of Rmb1.2bn, growing by an estimated 48% YoY, suggesting that the higher and vocational segment is operating on a sound basis. </li>
<li>It is in the process to transform three K-9 schools into higher vocational schools. Guidance for FY22 is not less than 20% earnings growth for the continuing business.  </li>
</ul>



China Yuhua Education (6169 HK) has significantly cleaned up its K-9 business by deconsolidated from FY21 result with a Rmb1.04bn one-off losses. Reported profit, however, still reached Rmb824.5m. 
The continuing business achieved a profit of Rmb1.2bn, growing by an estimated 48% YoY, suggesting that the higher and vocational segment is operating on a sound basis. 
It is in the process to transform three K-9 schools into higher vocational schools. Guidance for FY22 is not less than 20% earnings growth for the continuing business.  


China Yuhua Education (6169 HK): Cleaner After a Big Bath?

<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> again announced solid result with adjusted net profit surged by 57.1% to Rmb1.55bn in FY21, ahead of guidance and also better than market expectations.</li>
<li>Management suggests positive FY22 outlook as student recruitment is encouraging, new schools and campuses add momentum and potential acquisitions provide upside. Unified new student enrollment increased 34% YoY.</li>
<li>CEG stays as our top pick in China Private Education Sector, and its PER of 14.5x for FY22F is undemanding given sustained solid earnings outlook and less regulatory exposure.</li>
</ul>



China Education Group (839 HK) again announced solid result with adjusted net profit surged by 57.1% to Rmb1.55bn in FY21, ahead of guidance and also better than market expectations.
Management suggests positive FY22 outlook as student recruitment is encouraging, new schools and campuses add momentum and potential acquisitions provide upside. Unified new student enrollment increased 34% YoY.
CEG stays as our top pick in China Private Education Sector, and its PER of 14.5x for FY22F is undemanding given sustained solid earnings outlook and less regulatory exposure.


China Education Group (839 HK): Post-FY21 Result Call Suggests Robust Year Ahead

China

Offcn Education Technology Co Ltd offers education training services. The Company provides civil servants, institutions, and teachers training services. Offcn Education Technology mainly operates businesses in China

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Offcn Education Technology (002607 CH)

Asia EdTech and China Education: An Update

China's EdTech venture funding lagged behind India's in 2021. We expect regulatory concerns to keep China underperforming in 1H22, with India...

Osbert Tang, CFA

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

Hope Education (1765 HK): Hopeful or Hopeless?

With a focus on higher education, Hope Education should see lesser regulatory risks. Good cash flow, solid financial position and positive business...

Osbert Tang, CFA

China Yuhua Education (6169 HK): Cleaner After a Big Bath?

A massive cleanup of K-9 segment should clear many uncertainties from the government's regulations. Focusing on higher and vocational colleges will...

Osbert Tang, CFA

China Education Group (839 HK): Post-FY21 Result Call Suggests Robust Year Ahead

After beating expectation in FY21 result, positive outlook will extend into FY22 as student recruitment is encouraging, new schools and campuses...

Osbert Tang, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)