OpinionTAL results: new interest in education
TAL Education's latest results indicate the company may be poised for a new period of strong growth after a major operational overhaul.
After a painful retrenchment over the last two years, China's private education sector is showing early signs of a brighter future in the latest upbeat results of TAL Education (NYSE: XRS). The company not only posted growth that was solidly higher than its previous guidance, but also forecast an acceleration of that growth in the current quarter as it begins to reap the rewards of an overhaul that has produced a leaner, more focused company.
The positive results prompted two major research houses to raise their price targets for the company, hinting that a new period of growth could be coming for long-neglected China education stocks.
Both TAL and rival New Oriental Education (NYSE: EDU) were once the darlings of western investors, who were betting on strong growth based on surging demand for education services from newly affluent Chinese. But in their quest for growth, both companies built up excess capacity in major cities like Beijing and Shanghai, driving down their margins as they competed with foreign rivals like Disney (NYSE: DIS) and Pearson (London: PSON).
As part of their broader retrenchment, companies like TAL and New Oriental have been closing underperforming schools and crafting new strategies to reignite growth. In TAL's case, the company is making a big push into smaller cities where competition is less intense. It is also focusing more on smaller classes and individual tutoring, areas with greater potential even though revenue is typically smaller than that for large classes.
Following the overhaul and new focus, TAL reported that revenue growth for its fiscal quarter through May accelerated to 24.5 per cent at $61.4 million (HK$476 million), beating the top end of its previous guidance by about $2 million (HK$15.5 million). That growth was easily better than gains of 14 per cent and 20 per cent in the previous two quarters. Equally important, the company forecast that revenue growth would accelerate further in the current quarter to 30-33 per cent.