US$5.8 billion sell-off not the end for China’s battered tutoring stocks as investment banks rush to cut price targets

Investment banks have cut their recommendations and price targets on the tutoring sector after Beijing unveiled tough new rules to overhaul the US$100 billion industry

Shares of off-campus tutoring companies from TAL Education to New Oriental Education and Technology Group are in free-fall

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Taking courses after school goes against the government’s goal of reducing the homework burden on younger students, the Education Ministry said in a statement. Photo: Shutterstock

Published: 1:34pm, 26 Jul 2021Updated: 4:48pm, 26 Jul 2021

Even after the US$5.8 billion rout that dealt a blow to some 15 companies from TAL Education to New Oriental Education and Technology Group, China’s after-school tutoring stocks probably have further to drop.

Investment banks rushed to cut their recommendations and price targets on the tutoring sector at the weekend after Beijing unveiled tough new rules to overhaul an industry that is worth about US$100 billion.

China International Capital Corp (CICC) has lowered its share price estimates on TAL Education Group, New Oriental and Koolearn Technology Holding by at least 57 per cent, saying that some stocks are facing a further decline of at least 6 per cent.

Citic Securities says the sector that targets children between kindergarten ages and nine will move into a protracted period of “correction”, while Industrial Securities recommends avoiding all education-linked stocks, citing the possibility that the regulatory crackdown will spill over to other segments, such as career training and tutoring for older students.

“The tough regulations will have a significant impact on both revenue and profits for relevant companies,” said Cao Xute, an analyst at Shengang Securities “The valuations will also be revised downward accordingly.”

American depository receipts of TAL tumbled 71 per cent to US$6 in New York on Friday and New Oriental plummeted 54 per cent to US$2.93. CICC has set price targets of US$5.4 and US$3.1 for the two companies respectively.