Stock prices in Chinese education companies have plunged after the central government issued a draft proposal that would tighten regulations. However, the Ministry of Education has recently issued “Notice on Higher Education Institution Setting”, which encourage transformation of independent colleges. We believe this allows higher education institutions continue expanding via M&A. Also, NDRC recently released the draft amendment on Catalogue of Industries in which Foreign Investment is encouraged on Higher Education. There is a large difference for the education sector comparing with the previous version. Not only more regions are encouraged to have foreign investment, the wording of “mandatory for Chinese-foreign cooperatively-run schools with Chinese party’s control” is also removed. We believe investors’ concern on future expansion business model and profit distribution of higher education institutions should be eased. With a significantly lower political risk than K12 education, the sector is anticipated to gain drivers for a rerate which may present medium/long term investment opportunities for investors.
Ministry of Education