Private school operators head to Hong Kong for financing to expand
Total revenue of the mainland private education industry reached 287.9 billion yuan in 2015, a compound annual growth rate of 13.4pc from 2011
Four private mainland education companies are lining themselves up for initial public offerings in Hong Kong, as more firms tap into what has become a quickly growing market.
Bojun Education Company, the second largest private middle school operator in Chengdu, the capital city of China’s south-west province Sichuan, was the latest to file a prospectus with the Hong Kong Stock Exchange, in October, for a listing this year.
The fund-raising target is unknown yet, but the company plans to use the net proceeds to expand its network by developing with new schools in Sichuan and the United States, it said.
Bojun operates two middle schools, one middle and high school, and six kindergartens in Chengdu.
One month earlier before Bojun, China Yuhua Education Corporation applied for an initial share sale. It is China’s largest provider of private education, offering services from kindergarten through to university by student enrolments in the 2015-2016 school year, with 48,220 students, according to consulting firm Frost & Sullivan.
Minsheng Education Group Company, which operates four colleges in south-west city Chongqing, and China New University Group, running private universities in Yunnan and Guizhou provinces, also have IPOs in the pipeline.
This rush of IPOs of privately operated schools follows hot on the heels of Wisdom Education International Holdings Company, one of the largest private school operators in southern China, which raised a net of HK$796 million in its own IPO last month.
“We have noticed this phenomenon in the capital market. Private school operators are very active in getting listed in the mainland or in Hong Kong,” said Wang Qing, Shanghai-based analyst at Yuanta Securities.
“For regional operators in particular, the funds raised will help them expand their business to other provinces or markets by opening new schools or making acquisitions,” Wang said.
Yuhua Education said in its prospectus that it will use part of the proceeds to expand its schools network within Henan province and into other “attractive” markets in China, both building new ones by itself or partnering with third parties using an asset-light model without purchasing the land.
The proceeds will also finance its future acquisitions of K-12 schools and universities in Henan province and its surrounding regions.
K-12 represents fundamental education from preschool through to high school. China’s education industry consists of K-12 education from 3 years old to 18 years old, with then higher education for adults.
Those IPO candidates have generally posted considerable profit growth.
Yuhua’s net profit for the nine months ended May 31, 2016 increased 30.8 per cent to 220 million yuan from a year earlier. Bojun’s net profit rose 43.9 per cent year on year to 34 million yuan by August 31, 2016, after recording a 52.5 per cent year on year surge in 2015.
Minsheng’s interim net profit in 2016 rose 19.2 per cent year on year, while New University Group’s increased 26.9 per cent year on year during the same period, according to their prospectus.
Public offerings in Hong Kong take a shorter time and allow issuers to collect funds and start expansion quicker than in the as A-share market. Although is in speeding up its IPO process, there are still over 600 companies lined up to list, Wang from Yuanta said.
“But Hong Kong is not that favourable when it comes to valuations [of stock prices]. The market is more prudent to growth stocks, so valuations are lower, compared with the mainland market,” Wang said.
China first gave the green light to private education in the early 1980s when the government could no longer afford to expand its public education system.
Rapid growth followed throughout the 1990s, mainly because of favourable government regulations and rising personal consumption in the mainland, according to recent research by Frost & Sullivan.
Chinese private schools are allowed more independence in their operation, which tends to allow a more diverse curriculum and flexibility in designing their tuition fee system.
Total revenue of the mainland private education industry reached 287.9 billion yuan in 2015, representing a compound annual growth rate of 13.4 per cent from 2011, according to Frost & Sullivan.
The consulting firm expects that total revenue to surge to 494.8 billion yuan by 2020, which would be an 11.4 per cent growth every year on average.
Hong Kong market welcomed its first mainland private school operator in the secondary market in 2014, China Maple Leaf Education Systems, an international school operator which raised a net HK$866.2 million in a Hong Kong IPO.
Shares in Maple Leaf were trading at HK$5.27 on Monday, up 83 per cent from its offering price of HK$2.88, after they had hit HK$8.54 in August last year.
It was followed by the Hong Kong listing of Chengdu-based Virscend Education Company which debuted in January of 2016. Its shares price stood at HK$4.6 on Monday, compared with its offer price at HK$2.4.