Jefferies says these two Chinese private tutorial providers are set to ride China’s education boom
China’s private education market is set for solid growth even as the economy slows, analysts say
Large private education companies are set to grow their market share in China, edging out smaller rivals as they benefit from higher student retention rates, more efficient operating structures, and a pro-education push by the central government, according to analysts from US broker Jefferies.
Beijing-headquartered New Oriental Education & Technology Group and Beijing-headquartered TAL Education, two major companies in the sector, were assigned “buy” recommendations by Jefferies’ analysts Johnny Kin Man Wong and Shawn Zhou. The shares of both companies are listed in New York.
“We believe the retention rates for the large tutorial companies should be higher than the industry average, which we calculate to range between 34 per cent and 42 per cent,” Wong and Zhou wrote. “This corroborates our thesis that the larger operators are taking market share.”
The estimate for 2016 compared to a 30 per cent average industry retention rate in 2015, according to the Blue Papers for Chinese Education and Training Industry 2015, in which consultancy firm Mindtime surveyed nearly 19,000 education companies across the nation.
With higher retention rates compared to smaller rivals, big players face less expenditure on advertisement for attracting new students, according to Wong and Zhou’s note, adding that this would also help larger education companies in 2017.
