Education stocks are on the verge of collapse

Education stocks are on the verge of collapse

Yu Minhong, who wrote “I once walked on the edge of collapse”, is now “walking on the edge of collapse” again.

The domestic online education leader New Oriental founded by Yu Minhong and many domestic online education listed companies are currently facing major adjustments and transformations under policy guidelines and industry supervision. The signal for adjustment and transformation was clear as early as May.

“Three months ago, the founders of these training institutions have been interviewed by relevant departments. The key issue involved is that these training institutions earn high profits and affect fertility, but most parents actually don’t have much money to support the high cost of off-campus training. “A person familiar with the industry told the Caijing reporter, “The government has asked some institutions to close their doors, but the institutions under the influence of capital have not compromised on this.”

Recently, with the explicit introduction of relevant policies and new regulations on supervision, the transformation of the off-campus training industry is inevitable.

On July 24, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council issued the “Opinions on Further Reducing the Burden of Compulsory Education Students’ Homework and Off-campus Training” (hereinafter referred to as the “Opinions”) . Restrictive measures of training institutions.

Regarding the reasons for the release of the “Opinions”, the relevant person in charge of the Ministry of Education said in response to reporters that there are still some problems that have not been fundamentally resolved in China’s off-campus training institutions. The situation is serious.

On July 26, the “People’s Political Consultative Conference” commented that optimizing the fertility policy starts from overturning the mountains that affect the willingness to give birth, and education is one of the mountains.

In the view of Ping An Securities, the introduction of the “Opinions” has unprecedented and unprecedented supervision of the discipline training industry. It is expected to have a huge impact on all training institutions in the industry, and the business model and valuation system will be “destructive” Shock.

The stock prices of listed online education companies have undergone substantial adjustments before and after the introduction of relevant policies. Whether it is a Chinese concept stock listed in the United States, a Hong Kong stock listed in Hong Kong, or a company listed on the A-share market, those online education companies that have been affected by the two reduction documents have suffered a sharp decline in their share prices, and some companies’ share prices have fallen in a single day Over 70%, the market value of the three US-listed industry giants New Oriental, Gaotu and Good Future lost more than 100 billion in value overnight. The target prices of many companies have been significantly lowered, and the valuations of some companies have been lowered by more than 80%.

On July 26, the first trading day after the policy was introduced, a number of A-share-related listed companies opened their limit down.

Under the constraints of relevant policies, a large number of online education companies are facing transformation.

Some media interviewed New Oriental insiders, who said, “At an internal meeting not long ago, the management of New Oriental Group already knew that the education and training industry is going through a severe crackdown, and everyone began to talk about the company’s transformation. Faced with the company’s transformation Some people suggested that the company transform into a nursery school. At that time, Yu Minhong shed tears at internal meetings.”

“As soon as these measures are introduced, existing educational institutions will not only face the dilemma of losing the market, they must also maintain a stand-alone attitude.” Zhang Xiaorong, Dean of Deepin Technology Research Institute, told Caijing reporter.

However, transformation is not easy. Many organizations believe that these online education companies have a difficult road ahead.

Jack Ma had predicted the outcome of New Oriental. In a public speech many years ago, he said: “Education will always be there, but New Oriental will not necessarily be there.” 

Some market participants commented that Jack Ma’s jokes at the time seemed to have come to an end.

1. The market value has evaporated by more than 100 billion, and the traffic is accused of anxiety

Before and after the release of the “Opinions”, China’s New Oriental began to face an unprecedented test.

On July 26, the first trading day after the release of the “Opinions”, many A-share online education stocks opened or approached their limit. As of the close, Doushen Education’s share price has plunged by 20% and its limit, Fangzhi Technology, Quantong Education, Kede Education, and Century Dingli have fallen more than 10%. Kingsun shares, Zhonggong Education, Xueda Education, Kaiwen Education, ONLY Education, etc. both fell by 10% and recorded a lower limit.

On the same day, online education stocks in Hong Kong stocks fell further after the adjustment last Friday (July 23) . Among them, New Oriental-S fell 47.02% to HK$16.00 per share, and Silvio Education fell 45.45% to HK$1.380 per share. Excellent Education The group fell 42.45% to HK$0.610/share, and New Oriental Online fell 33.45% to HK$3.940/share.

Before the “Opinions” was formally issued, relevant policy documents had already flowed out on the Internet.

On the evening of July 23, there have been rare adjustments in the education stocks listed in the United States. Among them, the three major domestic education giants had the largest declines. Good Future eventually closed down 70.76% that night, Gaotu Group closed down 63.26%, and New Oriental closed down 54.22%.

In the above-mentioned trading day alone, the market value of Good Future evaporated US$9.362 billion, or approximately RMB 60.7 billion; the market value of Gaotu evaporated US$1.554 billion, or approximately RMB 10 billion; and the market value of New Oriental evaporated US$5.949 billion, or approximately RMB 38.5 billion. Yuan Renminbi. The market value of the three companies evaporated a total of 109.2 billion yuan overnight.

The “Opinions” issued by the two offices put forward a number of restraint measures for off-campus training institutions. The document requires that all regions no longer approve new subject-based off-campus training institutions for students in the compulsory education stage, and existing subject-based training institutions are uniformly registered as non-profit institutions. The online discipline training institutions that were originally filed are changed to an examination and approval system. Off-campus training institutions shall not occupy national statutory holidays, rest days and winter and summer vacations to organize subject training.

The document also mentions that subject training institutions are not allowed to be listed for financing, and capitalized operations are strictly prohibited. Those who have violated regulations shall be cleaned up and rectified. At the same time, strictly control the excessive influx of capital into training institutions, resolutely prohibit unfair competition in the form of fictitious original prices, false discounts, and false propaganda for the promotion of business, and resolutely investigate and punish industry monopolies in accordance with laws and regulations.

Regarding the reasons for the opinions, the relevant person in charge of the Ministry of Education said in response to reporters that one of the most prominent problems of compulsory education now is that primary and secondary school students are too burdened and short-sighted and utilitarian problems have not been fundamentally resolved. Off-campus training is still overheated, and the problem of advanced and over-standard training has not been fundamentally solved. Some off-campus training programs charge high fees, and there is a greater risk of excessive capital influx. Training institutions “difficult to refund”, “rolling money” and other illegal behaviors sometimes happen. These problems have caused excessive burdens on students’ homework and off-campus training, and parents’ financial and energy burdens. They have seriously offset the achievements of educational reform and development, and the society has responded strongly.

“The core of the introduction of the New Regulatory Policy directly refers to the high profits of relevant training institutions and the anxiety of sales.” The aforementioned person familiar with the education industry told the reporter of Caijing.

The relevant person in charge of the Ministry of Education also pointed out that in recent years, a large amount of capital has poured into the training industry, the “burning” war has been launched, advertisements have been overwhelming, and the whole society has been “bombeded and bombarded.” The public welfare attribute of education has been destroyed, and the normal ecology of education has been destroyed.

Affected by the New Regulatory Policy, many institutions have lowered the target prices of related listed companies.

According to a report from China Finance , the education and training industry in the Mainland ushered in the strongest supervision so far , and the ratings for Future (TAL.US) , New Oriental (EDU.US) and New Oriental Online (1797.HK) are all downgraded to “neutral”. And lowered the target price, lowered the target price of New Oriental Online by 57% to 5.3 Hong Kong dollars, lowered the target price of the future by 81% to 5.4 US dollars, and lowered the target price of New Oriental by 66% to 3.1 US dollars.

JPMorgan Chase also downgraded New Oriental Online’s rating from neutral to underweight, and lowered its target price to HK$3.5.

Second, a major transformation or a complete change of career?

The impact of the New Regulatory Policy on education stocks is considered “unprecedented in history” by institutions. Where will these education stocks go in the future?

On the night when the “Opinions” was released, many off-campus training institutions, including New Oriental, Good Future, Yuanjiao, Netease Youdao, etc. responded via official Weibo, saying that they firmly supported the deployment of the Party Central Committee and the State Council and fully implemented the Party’s education. Policy, deeply understand the significance of “double reduction”, take the initiative to benchmark the work requirements of “double reduction”, and strictly implement relevant regulations.

Regarding this policy, an investment banker told the Caijing reporter that the off-campus training industry has long needed to be regulated. “The teachers of many training institutions do not have the qualifications to teach. It is illegal to teach students without the qualifications. Moreover. Institutions instigate people’s anxiety. Making money for the sake of making money is not really for training children to improve their grades. Too little school teaches, causing parents to go to school outside. Improving the quality, content and time of school education is a fundamental measure.”

However, some people in the education industry told the Caijing reporter that although education and training institutions are subjectively or objectively carrying out anxiety trafficking, the idea of ​​rectifying this is good, but the “cause” of anxiety trafficking has not changed. The baton of the college entrance examination There is no change. The scarcity of high-quality educational resources and employment opportunities has not changed. Therefore, parents still need training. If they are able, they will ask for tutoring or other means at a higher cost. If there is no condition, the gap between them is only It will get bigger and bigger.

On the other hand, the introduction of the “double reduction” policy also makes listed companies whose main business is subject training face the impact of their main business and huge pressure for transformation and adjustment.

Up to now, many A-share listed companies have responded to the impact of the “double reduction policy” for compulsory education. From the perspective of revenue structure, Doushen Education, Xueda Education, Ongli Education, and Kingsun shares are more affected.

On the evening of July 25th, Xueda Education issued an announcement stating that the company’s students are mainly students at the compulsory education stage and ordinary high school students. Among them, the subject training business in the compulsory education stage is expected to be greatly affected. The company’s education and training business revenue accounted for nearly 99%. Among them, the high school level business income accounted for about 60% of the education and training business income, and the compulsory education stage business income accounted for about 40% of the education and training business income.

Coincidentally, Doushen Education, whose main business is large language learning services, also announced on the evening of July 25 that considering the company’s existing large language learning services business income accounted for the company’s operating income ratio has been increasing year by year. The “double reduction” policy will have a significant adverse impact on the company’s operating income and profits.

According to the 2020 financial report, Doushen Education’s major Chinese learning service business forms are mainly branch school business, online business, franchise business, B2B business, etc., with a total confirmed income of 565 million yuan, accounting for approximately 40.76% of total revenue. From January to March 2021, related businesses accounted for 53.66% of the company’s main business revenue.

Ongli Education stated that in 2020, the company’s education service business will achieve operating income of 1.521 billion yuan, accounting for approximately 84% of the company’s operating income. Among them, the income from discipline tutoring accounts for approximately 55% of the company’s total income. The company’s current overall operating conditions are stable and will further increase its business expansion in the fields of vocational education, international and basic education, and quality education.

Kingshang shares acquired Longwen Education in the K12 track. The main business of Longwen Education is to provide one-to-one extracurricular tutoring for students in the domestic K12 stage. Kingsun said that in 2020, Longwen Education will account for more than 50% of the operating income and profits of listed companies. The huge policy changes in the education and training industry will have a significant adverse impact on Longwen Education and the company’s overall operating conditions.

In addition to the negative impact on revenue, profit and other profitability, the online discipline training originally filed by Longwen Education will go through the approval procedures according to the standards, and there is uncertainty about whether it can pass the approval. It is worth noting that as of June 30, 2021, the goodwill balance formed by the acquisition of Longwen Education is 443 million yuan, which may be partially or fully depreciated in the future.

Kod Education’s assessment of policy impact has changed. On July 25, the company stated that it currently mainly provides vocational education and repetition services for non-compulsory students. The company’s education sector will achieve a net profit of RMB 163,043,300 in 2020, of which K12 extracurricular training will achieve a net profit of RMB 3.037 million, accounting for 1.84% of the net profit, which has a small impact on the company’s overall operating performance. Vocational education will become the company’s main business in the future.

However, in the early morning of July 26, the company made a supplementary explanation of the risk warning, saying that K12 extracurricular training achieved operating income of 151.47 million yuan, accounting for 30.69% of the subsidiary’s operating income. The implementation of the “Opinions” is expected to affect the K12 extracurricular training in the subsidiary. The training business has a significant impact.

China Media Holdings said that the relevant policies will not have a significant impact on the company’s operating conditions. The company’s education business is mainly vocational education and preschool education, and does not operate subject training business.

Zhong Gong Education (002607.SZ) , which is mainly engaged in the training and examination of civil servants , also hurriedly clarified, saying that the company’s main business is non-academic vocational employment training services for adults, and has not carried out the K12-stage subject-based off-campus training business. There is no major impact. However, even so, on July 26, the company’s stock price closed at a lower limit.

For listed companies that are deeply affected by the “double reduction” policy, where will they go in the future?

The aforementioned investment bankers told the Caijing reporter that the subject training institutions that have been listed will only be able to divest the compulsory education stage of the subject training business in the future, and adjust the direction of transformation. “In the non-compulsory education stage, even adult postgraduate entrance examinations, public examinations, and other This kind of research is no problem. The state only regulates compulsory education and pre-school education training, rather than prohibiting all training. The training itself is a non-profit organization, but the teaching aids, equipment, management and related supporting facilities can all be profitable , Did not block all investment.”

He also reminded that there is still a process for listed companies to face the issuance and implementation of the “Opinions”. “If there is still a three-year buffer period, it can be gradually advanced.”

The latest research report of CITIC Securities believes that in the future K9 discipline training institutions may enter a long-term era of strong supervision, and both business development and capitalization paths will be restricted. It is recommended that training institutions give more policy encouragement to quality education, vocational education, and education. With the transformation of technology and other directions, listed institutions may face the risk of delisting or divesting their discipline-related businesses.

Ping An Securities pointed out that the business space of K12 education and training institutions has been almost completely restricted. If it is fully implemented in various places, relevant companies in the industry will be thoroughly hit (except for some institutions including other businesses such as adult vocational education) .

At the same time, it said that various education and training institutions have begun to actively transform into areas such as quality and adult vocational education, but the user portraits, operating models, and teaching and research systems in these areas are different from those of K12 education and training. It remains to be seen whether the transformation can be successful.

“In the future, there are probably only two ways for these companies to go.” Zhang Xiaorong told the Caijing reporter , “One way is to hold the base and slowly transform to survive this cold winter; the other way is to escape, quickly clear stocks, and switch industries. , Start all over again.”

This article is from WeChat public account : Reading Yizhi (ID: dushuyizhi007) , Author: Yang Xiuhong, Wang Ying

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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