Chinese education shares dive again in Hong Kong on policy uncertainty

Shares of mainland educational companies fell again after yesterday’s rebound because of growing uncertainty over a rapidly growing sector that may face tightened regulatory oversight.

China’s Ministry of Justice last week said it was seeking consultation from the public over banning the expansion of companies in the non-profit school sector through mergers and acquisitions, by additions to franchise chains or by partnerships in management.

The rules, if implemented, aim to clarify the distinction between profit-making schools and non-profit schools, analysts said. Previously, some firms operating non-profit schools were able to find ways to enjoy land tax benefits and ultimately generate profits.

“Investors were previously attracted to Chinese education stocks for their strong growth and income streams,” said Alvin Cheung, associate director at Prudential Brokerage. “But China does not want the education sector to become the main engine for making profits. So the stocks are falling from expensive valuations given the uncertain future.”

Wisdom Education International Holdings, the largest private education group in southern China, slumped 8.4 per cent to HK$4.38, even though two major shareholders further bought shares in the company at prices above the market.

China Maple Leaf Educational Systems dropped 14.5 per cent to HK$4.0, China Yuhua Education declined 14.6 per cent to HK$3.17 and Tianli Education International Holdings slid 17.7 per cent to HK$1.67. China Education Group Holdings was down 6.2 per cent to HK$9.32 and China Xinhua Education was lower by 4 per cent to HK$2.63.

Li Suwen, CEO of Wisdom Education, bought 500,000 shares on August 14 at an average purchase price of about HK$4.7 per share, while Ng Cheuk Him, chief financial officer and company secretary, bought 480,000 shares on August 13 and 14 at an average purchase price of about HK$4.88 per share, according to a filing on the stock exchange.