Private universities and online education providers tipped to benefit from Chinese government plan

‘The most important theme this year is investment in the development of private higher education institutions,’ says Li Wei, Sinolink Securities

PUBLISHED : Sunday, 05 February, 2017, 5:02pm
UPDATED : Sunday, 05 February, 2017, 10:37pm

Private universities, vocational schools, and online education platforms are being tipped by analysts to be among the biggest winners from China’s recently rolled out 13th Five-Year Plan on education, which bids to narrow the huge gap in standards between urban and rural areas of the country.

The blueprint, unveiled by the State Council, offers guidelines on educational development through to 2020. It’s focus, say officials, is on educational development in the central and western provinces and impoverished regions, ensuring “modern vocational education” opportunities to the vast rural population.

It particularly encourages private capital to be invested in setting up colleges and professional training schools, or to offer online education to students in remote rural areas.

“Educational reform is right on track,” and at the heart of government planning, said Li Wei, an equity analyst for Sinolink Securities, “and the most important theme this year is investment in the development of private higher education institutions”.

The government says its goal is to raise the percentage of school children moving onto higher education from 40 to 50 per cent, bringing the total to around 350 million and Wei thinks privately-run learning institutions will provide most of these additional places.

We recommend investors focus on the securitisation of private universities... [vocational schools too present] a big opportunity for investors
Li Wei, an equity analyst for Sinolink Securities

“We recommend investors focus on the securitisation of private universities,” he said, adding vocational schools too present a “big opportunity” for investors, he said.

Currently China’s largest professional IT education services provider, for instance, is Tarena, with an 8.3 per cent share, according to the latest data from global market research firm IDC.

“Education for farmers, workers, and retired veterans has been emphasised within the 13th plan, and that should prove really positive for Tarena, given the bulk of its business is in vocational and further education,” said Johnny Kin Man Wong, an equity analyst for Jefferies, which has a “Buy” recommendation on Tarena, which is listed on Nasdaq in the form of American Depositary Receipt (ADR), with a price target of US$21.

Jefferies offers “Buy” ratings on stocks which they expect to provide total return of 15 per cent or more within a 12-month period.

Wong said he expects the Chinese government to support companies such as Tarena with business-friendly policies aimed at helping them grow, but even without direct help he forecasts Tarena’s growth to remain strong as demand for quality IT-related jobs continues rising.

Daniel Huang, an analyst at Shenwan Hongyuan Securities, adds that Tarena’s other key strength is its use of live internet-based courses, at sites across the country.

The company, he adds, broadcasts live lectures from Beijing to 135 directly-managed learning centres, which a combination of in-class tutoring and online teaching using a huge network of assistants who help run the classes for students.

[Tarena’s use of live internet-based courses] ensures the variety and quality of its training services, while reducing its costs per student as tutors cost far less than full-time instructors
Daniel Huang, analyst, Shenwan Hongyuan Securities

Tarena claims to have taught 353,000 students since being created in 2002, who have been put in contact with around 90,000 trained mentors and teachers.

Among the other vocational education service providers being tipped by analysts include Shenzhen-listed Changsha Kaiyuan Instrument – which acquired two vocational business schools in 2016 for 1.5 billion yuan – and Shanghai-listed Eastern Pioneer Driving School, China’s first listed driving schools.

But Sinolink’s Li Wei says he is most focused on the internet-based education sector, and highlights two firms: Shenzhen-traded Beijing Lanxum Technology, a computer programming service provider, and education software developer Shenzhen Kingsun Science & Technology.

Wei also likes the look of a company called China Online Education Group (51Talk), an English language teaching platform listed on the New York Stock Exchange in the form of ADRs.