www.research.hsbc.comDisclosures&Disclaimer:ThisreportmustbereadwiththedisclosuresandtheanalystcertificationsintheDisclosureappendix,andwiththeDisclaimer,whichformspartofit.PlayinterviewwithBinnieWongEquitiesHongKong/ChinaAugust2019By:BinnieWongChinaEducationWhatregulationsandonlineeducationmeanforthefutureofChinaafter-schooltutoringAfter-schooltutoringinChinaisbeingdrivenbyrisingpressureonchildrentosucceedacademically;weseeTALandEDUasthemostdefensiveChinagrowthstocksamidtradetensionsOnlineeducationoffersstudentsinsmallercitiesgreateropportunities,andforeducationproviders,scalability;onlineinvestmentwilltranslateintomoresustainablelong-termgrowthWeinitiateonthetwomarketleaders,TALandEDU,withBuyratings;wepreferTALduetothefasterramp-upofonlinebusinessandearningsrecoveryaheadSPOTLIGHT1Equities●HongKong/ChinaAugust2019TopmarksInvestorsinsearchofastrongdomesticgrowthstoryinChinawithnoexposuretofractiousinternationaltraderelationsshouldlooknofurtherthanthecountry’sthrivingafter-schooltutoringmarket.Educationisapowerfulculturalforce,asillustratedbythestrongdesireofmanyparentsfortheirsonordaughtertoexcelinthefearedgaokao,thecollegeentranceexamthatdetermineswhichuniversityyougoto.Anddespiteeffortsbythegovernmenttoreduceacademicpressureonstressedoutpupils,demandforextraclassescontinuestogrow.It’seasytoseewhy.UniversityacceptanceratesinChinaarelowerthanintheUSandthepenetrationratesofafter-schooltutoring(AST)remainfarbelowotherAsianeducationhothousessuchasHongKongandSouthKorea.Inthisreportweexplorethishighlyfragmentedindustryandidentifythepowerfulforcesthatwillgivegrowththenextpush.Oneofthemostimportantisthehugeappetiteforonlinecoursesinsmallercitiesandruralareas,whereaccesstoqualityteachingisoftenlimited.Onlineclassesaregoodforrevenues,too,astheycancaterforasmanyas1,000studentssimultaneously,farmorethantraditionalcoursesinclassrooms.Thechartsonthefollowingtwopagesillustratewhatwebelieveisacompellinggrowthstory.Weinitiatecoverageofthetwolargestafter-schooltutoringoperator...
