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Educators race to list in Hong Kong

Chen Meiling
Updated: Jul 30,2018 9:27 AM     China Daily

Chinese education companies, especially online services, are rushing to list in Hong Kong, reflecting the positive potential of the emerging segment, according to experts.

This month, major domestic online players Koolearn, a subsidiary of New Oriental Education and Technology Group Inc, and Shanghai-based Hujiang submitted their prospectuses for their initial public offerings.

Offline education providers China Xinhua Education Group Ltd, 21st Century Education Group Ltd and Tianli Education International Holdings Ltd all listed in Hong Kong this year.

More than 10 education companies are currently waiting in line, according to industry data.

Li Daxiao, chief economist at Shenzhen-based Yingda Securities, said the trend reflects the rapid development of the Chinese education market.

“There is great demand for education-related products among Chinese customers,” he said. “Products such as training courses can be supplementary to the current traditional school education system.”

IPOs are an important way for these companies to make better use of the capital market to realize quick expansion, Li said.

The State Council is encouraging schools, companies and other institutions to develop online education with more internet courses and resources, that can combine knowledge teaching and application services, according to a document released in August last year.

The transaction scale of the Chinese online education market reached 240.2 billion yuan ($35.43 billion) last year, up 54 percent year-on-year. China E-commerce Research Center expects that figure to surpass 400 billion yuan this year.

“Chinese per capita investment in education is only 10 percent of that in developed countries. With rising incomes, the vast population and the second-child policy, online education has great potential,” Chen Liteng, an analyst at the center, told Economic Daily.

Founded in 2005, Koolearn provides online courses covering preschool through to college education. The number of students on its online platform between May 2017 and February 2018 roughly doubled year-on-year, to reach about 1.4 million. Around 59 percent were college course users, according to the company.

Koolearn’s revenue totaled 485 million yuan from May 2017 to February 2018, up 48.29 percent year-on-year. Its net profit grew 17.8 percent to reach 80.77 million yuan during the same period. Its gross profit margin has remained higher than 60 percent over the last three years, according to the company.

Hujiang’s revenue grew 63.7 percent from 339 million yuan in 2016 to 555 million yuan last year, but its net loss also increased 27.3 percent from 422 million yuan to 537 million yuan, data from the company showed.

Li from Yingda Securities said investors should keep an eye on the top companies, which are more likely to provide good returns, and take a cautious attitude toward the estimated value of each enterprise.

Just like companies involved in the new economy industries, online education companies have few fixed assets, such as factories or equipment. Therefore, it is harder to gauge their value, and that makes it difficult for them to raise funds from banks, he said.

“It’s an emerging industry with much potential. But it is also hard to predict stable returns in the long run. So, don’t push too hard,” Li said.