Chinese school operators seek IPOs in Hong Kong amid burgeoning education sector

Three mainland private education providers are seeking listings as the “sunrise” industry defies the economic slowdown

PUBLISHED : Thursday, 22 September, 2016, 7:38pm
UPDATED : Thursday, 22 September, 2016, 10:53pm

A number of China’s private school operators are seeking listings in Hong Kong as the emerging private education sector flourishes across the country despite the economic slowdown.

Three private education providers have filed their draft prospectuses for initial public offerings in Hong Kong in the past two months, namely Wisdom Education International Holdings, China New University Group and China YuHua Education Corporation.

“The domestic demand for high-quality private schools, especially international classes that pave the way to western universities, is skyrocketing,” said Armand Yeung, managing director of Central Asset Investments.

YuHua Education, which operates 24 private schools for K-12 education (from kindergarten to high school) and one private university in central China’s Henan province, is the latest to look to Hong Kong for an IPO.

Demand for high-quality private schools, especially international classes that pave the way to western universities, is skyrocketing
Armand Yeung, managing director, Central Asset Investments

It had 48,220 students enrolled for the 2015/2016 school year, including about 23,000 students from K-12 campuses, making it the largest private education provider from kindergarten to university in China by number of students, the company said.

Established in 2001, YuHua said 12 of its students have achieved the highest score at the provincial or municipal level in China’s national college entrance exams, with 14 per cent of its students being admitted to China’s top tier universities this year. It has also sent many high school graduates to overseas universities such as UC Berkeley and University of Sydney.

The company plans to expand its school network and international course offerings after the listing.

Analysts say the sector is attractive to investors because it offers room for long-term growth.

“The sector is much more attractive than traditional sectors such as banking or real estate,”said Wong Chi-man, head of research at Hong Kong-based China Galaxy International Securities.

The sector is much more attractive than traditional sectors such as banking or real estate
Wong Chi-man, head of research, China Galaxy International Securities

He says education is a sunrise industry - one in its infancy but enjoying rapid growth - backed by favourable policies which form part of national level educational reforms.

Yeung said K-12 is promising because of “the strong and stable long-term cash flow” from tuition fees as students usually don’t change schools.

Wisdom Education, a market leader in southern China, opened five private primary and secondary schools in Guangdong and Liaoning province, and recorded a net profit of 182 million yuan in 2015, double that of 2014, with net profit margin as high as 32 per cent, according to the company’s prospectus to the Hong Kong bourse.

Deloitte expects the size of the Chinese education market to grow from 1.6 trillion yuan in 2015 to 2.9 trillion yuan by 2020.

Outbound international students from China have grown from 280,000 in 2010 to 520,000 in 2015, the firm calculated.

China Maple Leaf Educational Systems, the country’s largest international school operator listed in Hong Kong, has seen its share prices soar more than 200 per cent in the past year, while Virscend Education, which owns Chengdu Experimental Foreign Languages School and went public in Hong Kong this year, has seen its shares jump 75 per cent year-to-date.

Wong said the high valuations of the first two Hong Kong-listed mainland school operators have boosted confidence for the late-comers.

It would be no surprise to see the new comers achieve double digit P/E (price-earning) ratios in Hong Kong, he added.