Off-campus training was hit hard, and many A-share listed companies responded. Who is more affected?

Brokers: The industry has been hit hard, and it is recommended that institutions should speed up the transformation

Last weekend, off-campus training ushered in a “big earthquake”. The introduction of the “double reduction policy” not only caused the stock prices of many educational institutions such as New Oriental and Good Future to plummet, but also made many listed companies whose main business is non-disciplinary training “panic”!

On the evening of July 24, the People’s Daily published an article on its official Weibo , forwarding the full text of the “Opinions on Further Reducing the Burden of Compulsory Education Students’ Homework and Off-campus Training” issued by the Central Committee of the Communist Party of China and the General Office of the State Council. It mentioned that “off-campus training institutions shall not occupy national holidays, rest days, and winter and summer vacations to organize subject training, shall not provide “photographic search for questions”, no longer approve new subject training institutions, and shall not be listed for financing.” As soon as this document is issued, Not only has it attracted the attention of all walks of life, it has also had a significant impact on the future direction of training institutions. How will related listed companies respond?

On the same day, many head education institutions such as New Oriental and Good Future responded to this. On the evening of July 25, a number of listed companies issued announcements in response to the impact of the “double reduction policy.”

Some securities companies believe that the implementation of the “double reduction” policy has announced that K9 discipline training institutions have entered a long period of transformation and adjustment. ” Daily Economic News ” learned from industry sources that some education industry analysts said that the “double reduction” New Deal may lead to a sharp decline of more than 70% in the overall business of education and training institutions. It is recommended that academic institutions transform as soon as possible, or even change careers.

Many listed companies respond to the impact of the “double reduction” policy

On July 24, the boots officially landed. According to news from Xinhua News Agency on July 24, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council have recently issued the “Opinions on Further Reducing the Burden of Compulsory Education Students’ Homework and Off-campus Training” (abbreviated as “Opinions”).

According to the summary before each editor, the main points of the “Opinions” include:

1. Schools should ensure that no homework is assigned to the first and second grades of primary school, and consolidation exercises can be arranged appropriately in the school; the average completion time of written assignments for the third to sixth grades of primary school does not exceed 60 minutes, and the average completion time of written assignments for junior high school does not exceed 90 minutes.

2. It is strictly forbidden to assign or disguise assignments to parents, and it is strictly forbidden to ask parents to check and correct the assignments.

3. In principle, the end time of after-school services should not be earlier than the local normal off-duty time; for students with special needs, the school should provide extended custody services.

4. Strictly investigate and punish teachers’ paid supplementary lessons outside the school in accordance with laws and regulations, until the teacher’s qualification is revoked.

5. 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. For the online discipline training institutions that were originally filed, the approval system was changed. All provinces (autonomous regions and municipalities directly under the Central Government) shall conduct a comprehensive investigation on the online discipline training institutions that have been filed, and re-approve the approval procedures according to the standards.

6. Disciplinary training institutions are not allowed to be listed for financing, and capitalized operations are strictly prohibited; listed companies may not invest in discipline training institutions through stock market financing, and may not purchase the assets of discipline training institutions by issuing shares or paying cash.

7. Off-campus training institutions shall not occupy national statutory holidays, rest days and winter and summer vacations to organize subject training. Training institutions must not rob school teachers with high salaries; personnel engaged in subject training must have corresponding teacher qualifications.

8. Strictly control the excessive influx of capital into training institutions. The financing and fees of training institutions should be mainly used for training business operations. Unfair competition in the form of fictitious original prices, false discounts, false propaganda, etc. is strictly prohibited for the promotion of the business. Industry monopolistic behavior.

9. Schools are not allowed to increase or decrease class hours at will, increase difficulty, and speed up progress; reduce test pressure, improve test methods, and must not end class preparations in advance, violation of unified tests, excessive test questions, and test rankings.

10. Strictly follow the curriculum standards for zero-start teaching, and do the best to teach; gradually increase the proportion of high-quality ordinary high school enrollment indicators allocated to junior high schools in the region, standardize the order of ordinary high school enrollment, and eliminate illegal enrollment and vicious competition.

On the evening of July 24, New Oriental and Good Future responded to the “double reduction”: they will firmly support the decision and deployment of the Party Central Committee and the State Council, thoroughly implement the spirit of the 19th National Congress of the Party and the Fifth Plenary Session of the 19th Central Committee, and deeply understand the importance of “double reduction”. significance.

Off-campus training was hit hard, and many A-share listed companies responded. Who is more affected?

Off-campus training was hit hard, and many A-share listed companies responded. Who is more affected?

In the early morning of July 25, the official Weibo of Netease Youdao and Yuandaodao also expressed their views. NetEase Youdao will deeply understand the importance of the “double reduction” work. Youdao’s excellent courses will be based on the positioning as a useful supplement to public education, operate in compliance with the double reduction requirements, increase technological innovation, and continue to provide high-quality education products. Yuanjiao said that it deeply understands the significance of “double reduction”, takes the initiative to benchmark the work requirements of “double reduction”, and strictly implements it.

Off-campus training was hit hard, and many A-share listed companies responded. Who is more affected?

Off-campus training was hit hard, and many A-share listed companies responded. Who is more affected?

Earlier, on July 23, Gaotu also responded to the “double reduction” stating that as a social education institution, Gaotu firmly supports the double reduction work, does a good job of supplementing socialist education, and will increase investment in vocational education. .

On the evening of July 25, many A-share listed companies , including Doushen Education, Ongli Education , China Media Holdings , Kingshang , and Xueda Education , also responded to this. Among them, Doushen Education said it will have a greater impact on the company, and Kingsun shares said it will have a major impact on the company’s wholly-owned subsidiaries.

Doushen Education: “Double reduction” policy will have a significant adverse impact on the company’s operating income and profits

The announcement stated that this “double reduction” policy will be implemented in terms of the nature of the subject training institution, the school permit, the teacher, the teacher qualification, the training time, the training content, the training form, the training venue, the training price, the marketing method, the financing method, etc. Strict restrictions and regulations, considering that the company’s current large-language learning service business income accounted for the company’s operating income as the proportion of the company’s operating income has been increasing year by year, (from January to March 2021, related businesses accounted for 53.66% of the company’s main business income), only In the first quarter of 2021, RMB 89.78 million was collected in cash for the Chinese language learning business; revenue was RMB 128 million.

The company expects that the “double reduction” policy will have a significant adverse impact on the company’s operating income and profits.

Off-campus training was hit hard, and many A-share listed companies responded. Who is more affected?

Doushen Education stated that the specific impact of the “double reduction” policy on revenue and profits in 2021 needs to be comprehensively evaluated on the basis of further understanding of the follow-up implementation rules and implementation results of relevant government departments. The company will continue to keep track and make disclosures in strict accordance with relevant regulations on information disclosure.

Onlly Education: At present, the overall stability of the operation has taken the initiative to respond to the requirements of standardized school running

According to the announcement, the company’s main business is education services. In 2020, the company’s education services business will achieve operating income of 1.521 billion yuan, accounting for approximately 84% of the company’s operating income. Among them, academic tutoring business income accounts for approximately 55% of the company’s total income. . The company firmly supports the central decision-making and deployment, deeply understands the spirit of the “Opinions”, judges the possible impact of the implementation of the “Opinions” and formulates corresponding measures.

Ongli Education stated that the company’s current overall operating conditions are stable, financial conditions are stable, and various businesses are being carried out normally. It has actively responded to the requirements of standardized schooling, integrated and optimized existing campuses, and continuously improved the quality of education and service levels. At the same time, the company will further increase its business expansion in the fields of vocational education, international and basic education, and quality education to meet the diverse educational needs of the society.

Ongli Education stated that the company will pay close attention to the dynamics of the implementation rules of the city and region where the company’s business belongs, and will follow the information disclosure regulations to perform its disclosure obligations in a timely manner.

Xueda Education: K12 education and training business is expected to be affected

According to the announcement, the company’s business is mainly to provide personalized education and training services for domestic students with tutoring needs, and the source of students is mainly compulsory education and ordinary high school students. Among them, the subject training business in the compulsory education stage is expected to be greatly affected. Combining the company’s operations in recent years, the company’s education and training business revenue accounted for nearly 99%. Among them, the high school revenue accounted for about 60% of the education and training business revenue, and the compulsory education revenue accounted for about 40% of the education and training business revenue. The three-stage operating income accounts for about 20% of the education and training business income. The implementation of the “Opinions” is expected to have a certain impact on the company’s main business income and profits. In addition, under the new industrial policy, the company in related disciplines like teaching learning network set up point, external financing, training content, training time, training fees, etc. are also expected to be affected to varying degrees.

Kingsun shares: Longwen Education faces major policy risks

The announcement stated that Guangzhou Longwen Education Technology Co., Ltd. (hereinafter referred to as “Longwen Education”), a wholly-owned subsidiary of the company, is a national education and training institution whose main business is to provide one-to-one extracurricular tutoring for students in the domestic K12 stage.

The company stated that, given that Longwen Education accounts for more than 50% of the company’s operating income and profits, 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. Possible specific impacts and risks include but are not limited to the following:

One is that Longman Education is one of the company’s main business income and profit sources. As an existing discipline training institution, the positioning of “non-profit institutions” and possible price-limiting measures will all contribute to Longman Education’s profitability. Ability to have a significant adverse effect;

Second, the online discipline training originally filed by Longwen Education will go through the approval procedures again according to the standards, and there is uncertainty about whether it can pass the approval;

Third, there is a risk that Longwen Education will not be able to establish new offline teaching sites and the existing teaching sites do not meet the requirements of the new regulations and cannot pass the review and will be closed;

Fourth, since holidays, winter and summer vacations, and weekends are the core periods for enrollment and class consumption of traditional subject training, subject training for students in compulsory education is not allowed during this period, which will have a serious impact on Longwen Education’s existing business;

Fifth, the policy requires strengthening the control of off-campus training advertisements, and the advertising of Longwen Education will be restricted in the future;

Sixth, arbitrary capitalization operations are strictly prohibited. The company may not be able to continuously invest in the education sector involving subject education and training, which may affect the business development of Longwen Education;

Seventh, as of June 30, 2021, the balance of goodwill formed by the merger and acquisition of Longwen Education was 443 million yuan. Affected by this, there is a possibility of partial or full impairment in the future.

Financial report data shows that in 2020, Kingsun shares will realize a net profit of 45 million yuan attributable to the parent. In the first half of 2021, Kingsun shares will have a net loss of 68 million yuan.

Kede Education: K12 extracurricular training business accounts for a small proportion, and the company’s education sector will achieve a net profit of 163 million yuan attributable to the parent in 2020

According to the announcement, according to the company’s audited 2020 annual report, the company’s education sector will realize a net profit of RMB 163,043,300 attributable to the parent in 2020. Among them, K12 extracurricular training achieved a net profit of RMB 3.037 million attributable to the parent, accounting for 1.84% of the net profit, which had a small impact on the company’s overall operating performance.

Off-campus training was hit hard, and many A-share listed companies responded. Who is more affected?

The company will cooperate with the implementation of the double reduction policy to further comply with regulations and minimize the impact of this part of the business. Kede Education stated that the company’s current main business is mainly non-compulsory students entering school. According to the announced policies, the company’s business operations are limited by industry policies. The company will pay close attention to the changes in the K12 education industry policies and regulations, and actively explore the development of vocational education, quality education and education technology that are more encouraged by the layout policy, so as to reduce the risks caused by changes in industry policies and regulations.

China Media Holdings: Will not have a significant impact on business conditions

The company stated that it would sort out its business in accordance with the spirit of the “double reduction” opinion. The main business operations of the company and its subsidiaries mainly include advertising planning and publishing, newspapers and periodicals publishing and printing, and education. Among them, the education business is mainly vocational education and preschool education. China Media Holdings stated that the company and its subsidiaries do not operate subject training business, and the “double reduction” opinion will not have a significant impact on the company’s operating and financial status.

The market value of the education giants evaporated by nearly 730 billion

On Friday, the Hong Kong-listed shares the lead in education plummeted, New Oriental fell 40.61 percent, the highest in the history of the largest single-day drop in history; New Oriental Online, think music education educating down over 28%. On that day, the market value of the education sector in Hong Kong stocks evaporated by HK$46.7 billion.

Immediately after the opening of the U.S. stock market, the education concept stocks continued to plummet. As of the close of the day, Good Future fell 70.76% to US$6 per share; Gaotu fell 63.26% to US$3.52 per share; New Oriental fell 54.22% to 2.93 USD/share. In addition, stocks such as Wuyou English, Youdao, and Ruisi Subject English all fell more than 40%.

It is worth noting that during the epidemic last year, online training institutions developed rapidly, the market value of related listed companies skyrocketed, and off-campus training was once regarded as the next trend. From 2019 to 2020, Gaotu Group has risen by 393%, New Oriental has risen by 239%, and the future has risen by 168%. Hot money has poured into this industry. Data shows that in 2020, China’s basic education online industry will raise more than 50 billion yuan in financing, which is more than the industry’s previous 10 years of financing.

The bull market in education stocks listed in the United States lasted until February this year. At that time, among the three giants in the education industry, New Oriental’s stock price hit a maximum of US$19.97/share, Good Future hit a maximum of US$90.96/share, and Gaotu Group reached a maximum of US$149.05/share. At its highest market value, New Oriental exceeded US$33.7 billion, Good Future exceeded US$54 billion, and Gaotu Group exceeded US$36.3 billion.

It is worth noting that since the peak in February this year, the share prices of the education giants-Good Future, Gaotu, and New Oriental have fallen by 93%, 97%, and 85%, respectively. The market value of New Oriental, Good Future, and Gaotu Group is only left. The total market value of the three companies was US$6.662 billion, US$3.869 billion, and US$896 million. The cumulative market value of the three companies has evaporated more than US$112.5 billion, or approximately RMB730 billion.

Brokers: The industry has been hit hard, and it is recommended that the institutions should speed up transformation

Ping An Securities issued a research report on July 25, stating that the “double reduction” document content 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. The business model and valuation system have “Destructive” impact.

Ping An Securities believes that the business space of K12 education and training institutions is almost completely restricted. If all localities are fully implemented, relevant companies in the industry will be thoroughly hit (except for some institutions including adult vocational education and other businesses). At present, various education and training institutions have begun to actively transform into areas such as quality and adult vocational education. However, 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. We believe that the entire K12 education and training industry is very risky, and it is not recommended to pay attention to and participate in it for the time being. We downgrade the industry rating from “neutral” to “weaker than the market”.

CITIC Securities issued a research report on July 25, stating that the implementation of the “double reduction” policy was basically consistent with the institution’s previous expectations (market pessimism), and announced that K9 discipline training institutions have entered a long period of transformation and adjustment.

In the future, K9 discipline training institutions may enter a long-term period of strong supervision. Both business development and capitalization will be restricted. At the same time, pre-school education and training and high school discipline training also have certain regulatory risks. Therefore, it is recommended that training institutions follow the policy More encouraged transformations in quality education, vocational education, and educational technology.

CITIC Securities believes that the main impacts include restrictions on the number of training institutions, training time, training prices, and prohibition of capitalization. In the future, K9 subject training institutions will struggle, and preschool institutions and high school subject institutions will no longer issue new licenses.

CITIC Securities believes that the policy will further enrich and strengthen the supply within the school, and gradually reduce the pressure on the entrance examination.

CITIC Securities pointed out that some cities have implemented pilot projects, focusing on reducing subject training institutions, enriching after-school services (providing hobby services or introducing non-disciplinary off-campus training institutions to participate), and monitoring training fees. CITIC Securities believes that most of the main pilot cities are regions with developed disciplines and training, which have a strong role in demonstrating policy implementation. In the future, it will not be ruled out that the pilot content will be implemented nationwide.

Regarding the prohibition on the capitalization of discipline training institutions, CITIC Securities believes that this policy is more stringent than the supervision of the preschool education industry in 2018. In addition to the prohibition of future discipline training institutions from listing, it also involves the legality of the VIE structure and clearing up those that have violated regulations. Remediation means that listed institutions may face the risk of delisting or divesting discipline-related businesses.

(Disclaimer: The content of this article is for reference only, not as an investment basis. Investors operate accordingly at their own risk.)

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/off-campus-training-was-hit-hard-and-many-a-share-listed-companies-responded-who-is-more-affected/
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