<p>China Education sector is entering a period of high growth arising from rising enrolment and tuition fees. It benefits from the relaxation of one-child policy and removal of regulatory overhang.</p><p> </p><p>The relaxation of one-child policy in China after more than 3 decades will result in strong enrolment in the education sector. From 2016, Chinese families are allowed to have two children. This will lead to higher intake of students in K-12 program which covers kindergartens as well as primary and secondary school education. </p><p> </p><p class="Default">Regulatory overhang on the sector is removed after the announcement of the “Revised Draft of The Law for Promoting Private Education” from the Ministry of Education. It recognizes that the VIE structures adopted by most education companies are legal. It is also increasing regulations especially on areas such teaching content, student safety concerns. This will drive the consolidation of smaller unlisted companies and favour the bigger companies such as TAL Education and New Oriental Education.</p><p> </p><p>Companies that are key beneficiaries of the growth in China education:</p><ol><li><b>TAL Education (TAL US)</b></li><li><b>New Oriental Education (EDU US)</b></li><li><b>China Maple Leaf Education (1317 HK)</b></li><li><b>China Yuhua Education (6169HK)</b></li><li><b>Wisdom Education (6068 HK)</b></li></ol><p><b></b></p><p> </p><h3><span style="text-decoration: underline;">TAL Education (TAL US)</span></h3><p>TAL Education is one of the largest tutorial operators in China and it is focused on the premium high-achieving students in the K-12 curriculum. It offers tutoring services in core academic subjects such as English, Chinese, Mathematics and Sciences. It enjoys strong enrolment growth and rising ASP from higher tuition rates. It is focusing on increasing online market share in the next 1-2 years especially in the lower tier cities within China.</p><p> </p><h3><span style="text-decoration: underline;">New Oriental Education (EDU US)</span></h3><p>New Oriental Education is one of the largest K-12 tutorial operators in China. It offers foreign language training, test preparation courses for admission tests in primary and secondary schools in China, the US and Commonwealth countries. The company have a total 1000 learning centres, of which 600 are targeted to the high growth K-12 market. It is also aiming for faster expansion into the lower tier cites by offering dual teacher classes for K-12 courses in several cities.</p><p> </p><h3><span style="text-decoration: underline;">China Maple Leaf Education (1317 HK)</span></h3><p>China Maple Leaf is the largest operator of high schools qualified under the British Columbia curriculum. It is one of the leading international school operators in China and operates close to 80 preschools, elementary, middle schools, high schools and foreign national schools. It is targeting to open another 11 new schools in the future. It is also operating on an asset-light strategy to acquire schools in operations and build a nationwide school network faster.</p><p> </p><h3><span style="text-decoration: underline;">China Yuhua Education (6169HK)</span></h3><p>China Yuhua is the largest operator of integrated private education from kindergarten to university in Central China. The company benefits from providing high quality education services which set it apart from the others in Henan province. It recently acquired 70% stake in a high school in Kaifeng for further expansion into the K-12 market. It is expected to gain synergies with its primary and middle school in the city. The company enjoys strong organic growth from rising enrolment, tuition fees as well as executing M&amp;A opportunities.</p><p> </p><h3><span style="text-decoration: underline;">Wisdom Education (6068 HK)</span><span style="text-decoration: underline;"></span></h3><p>Wisdom Education is one of the leading private education provider in the Southern China with schools in Dongguan, Huizhou and Panjin. It enjoys a strong earnings outlook arising from high enrolment growth, rising tuition fees and margin improvement from better utilization rates. It is focusing its expansion within its home province which allows it to leverage on its strong brand equity further.</p><p> </p><p><b>Edmund Chan, CFA</b></p>