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Investors bet on redemption for China’s godfather of education
Author: EnglishTeacher    2022-07-26

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China’s education reforms last year wiped 90 per cent off the value of China’s biggest private sector education company, New York-listed New Oriental Education, undoing decades of work by its founder Yu Minhong.


When Yu vowed to rise again, few expected the godfather of modern Chinese private education to turn to hawking steaks, books and lipstick to rebuild his business empire.


Yet livestreaming that combines English training and history lessons with unabashed product sales are central to Yu’s pivot from physical classrooms to online services.


The popularity of videos by New Oriental and its Hong Kong-listed subsidiary Koolearn Technology — with some drawing millions of viewers — has captured the attention of investors and delivered a 125 per cent share price increase in the past three months.


A year ago, Beijing banned for-profit companies from tutoring primary and middle school students, cratering New Oriental’s core revenue stream.


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Now Citi analysts are among those advising clients that the worst is over for Chinese private education. The US bank has a “buy” rating on New Oriental, after the group laid off 60,000 staff in January and reported a $876mn loss for the six months to November last year.


Citi forecasts New Oriental’s shares in Hong Kong will recover more than 40 per cent, based in part on the group’s ability to use its livestreams to sell merchandise.


“We think New Oriental has a visible growth trajectory over the longer-term, aided by robust demand for quality education services in China,” the bank’s analysts said.


“Investors are literally being paid to wait until it completes restructuring . . . and establishes its path to scale and profitability,” a JPMorgan analyst said, noting that the process could take several years.


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Yu, a prolific user of social media, has made it clear that pandemic controls under China’s zero-Covid policy continue to have a “high impact” on his business, forcing the suspension of offline classes and a wave of refunds.


The 59-year-old has also warned that losses could continue for years. But he is unwavering as he tries to revive the business he started in a single classroom in a rundown Beijing building in 1993.


“The most important thing is to ignite the light in children’s hearts,” he said in June.


The company plans to focus more on education-adjacent businesses, such as livestreaming and book publishing, tutoring for English-language proficiency tests and consulting for admissions into foreign universities, which are activities that Beijing has not banned.


However, staff at New Oriental and other large Chinese companies have said they are still trying to gauge the limits of government tolerance.


New Oriental is not the only corporate victim of the regulatory crackdown to turn to ecommerce livestreaming. Qudian, a Chinese online microlender, also made the move this year. The New York-listed internet finance company, which has seen its market valuation fall $4.2bn since Beijing banned loans to borrowers with no income in December 2017, now aims to become a “food company”. In one marathon 19-hour livestreaming session this month, Qudian founder and chief executive Min Luo sold 9.56mn ready-to-cook dishes.


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New Oriental had been “distinguishing itself” from typical livestreaming with its free English lessons, rather than heavy product discounts. However, the livestream industry is saturated in China, the rivalries within it are fierce.


The crackdown on private education companies was part of a broader effort to cut the cost of childcare to boost the country’s low birth rate. But demand from Chinese parents for education-related services appears to remain strong amid an ultra-competitive job market and record youth unemployment.


One teacher, who asked not to be named but who taught with New Oriental for 10 years, said she had started teaching children “on the side” since the ban, a move that carries immense personal risk.


“I have to be very careful choosing parents. If you let in a troublesome parent who ends up reporting you, then you’re done,” she said, adding that many more parents wanted to send their children overseas because the new regulations had limited their access to tutors.


Still, industry insiders have said lingering regulatory risk means there is little prospect of a return to the golden era of Chinese private education.


“Before the regulations changed, the phrase was tangying — lie in bed and win,” the New Oriental teacher said. “For salesmen and saleswomen, all they had to do was sit in the office and wait for clients to come. The days of tangying have passed.”


Source: https://www.ft.com


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