中国教育行业：线上教育热潮（英文版）_65页_1mb

China Education Sector Summary

Core Content

This document provides an analysis of the China education sector, with a focus on the online K-12 after-school tutoring (AST) market. It discusses the impact of the COVID-19 pandemic on the industry, the behavioral changes it has induced, and the valuation and growth potential of key players.

Main Points

• Online education fever: The pandemic led to a significant shift in student behavior, with many turning to online education due to school closures. This resulted in a surge in user engagement and traffic for online K-12 operators.

• Rally in share prices: Online K-12 operators such as GSX (Techedu), Koolearn, and Youdao experienced substantial share price increases, with GSX up 93%, Koolearn up 65%, and Youdao up 57% year-to-date (YTD), far outperforming the HSCEI (-9%) and TAL (+13%).

• Valuation and multiples: The sector is currently priced at high multiples, with GSX trading at 17x P/Sales, Koolearn at 12x P/Sales, and Youdao at 11.5x P/Sales for CY20E. These are among the highest in the China internet space.

• TAM conversion: The total addressable market (TAM) for online K-12 tutoring is expected to grow significantly. In 2019, the online segment represented 8.4% of the total K-12 AST market, and it is projected to reach 25.8% by 2024E, with online revenue growing at +38% CAGR to RMB214B.

• Conversion challenges: Despite the initial surge in free course enrollments, the conversion of free users to paid users remains a critical challenge. The process involves engagement, short-term usage, and long-term retention, and the quality of traffic and experience may affect this.

Key Players and Recommendations

• TAL is recommended as the preferred way to play the online K-12 market due to its strong brand equity, high-quality curriculum, and best-in-class management. It is expected to outgrow the industry with a 63% CAGR in the next three years.

• GSX is noted for its star-teacher strategy and aggressive marketing, which have driven super-normal growth. However, the stock is rated Neutral due to high valuation and uncertain long-term viability.

• Koolearn is rated UW (Underweight) due to its limited market share and challenging growth assumptions. Its free course strategy helped it gain 1m+ enrollments, but the conversion to paid users is uncertain.

• New Oriental (EDU) is the top pick for those not investing in online education, due to its affordable valuation and opportunity in the offline space. It is expected to benefit from accelerating consolidation in the offline sector.

Investment Strategy

• Momentum chasers may find GSX appealing, as its growth strategy is still seen as viable. However, the valuation is high, and the risk/reward is not favorable.

• Sustainable investors are recommended to focus on TAL for its long-term moat and valuable product offerings.

• EDU is considered a safe bet for those looking for offline opportunities and value investing.

Market Analysis

• Offline vs. Online: Offline AST has grown at a ~10% CAGR, while online has grown at ~40% CAGR. The online penetration has increased significantly, from 3% in 2014 to 8.4% in 2019.

• Price disparity: Online courses are less expensive than offline, with ASP around RMB30-50/hour versus RMB60-100/hour for offline. This makes online more accessible and affordable, but offline is still seen as more effective in terms of teaching quality and student engagement.

• Coexistence of online and offline: The report suggests that online and offline tutoring will coexist in the foreseeable future, with each complementing the other.

Valuation and Growth Forecasts

• Online K-12 market growth: The report forecasts the online K-12 AST market to triple in three years to RMB127B and quintuple in five years to RMB214B.

• TAL's growth: Expected to grow at 63% CAGR for the next three years, reaching RMB46.1B in 2024E.

• GSX's growth: Projected to grow at 95% CAGR in the next three years, with revenue tripling to RMB5.7B in 2020E.

• Koolearn's growth: Modelled to grow at +100% CAGR over the next three years, reaching RMB2.0B in 2022E.

• New Oriental's growth: Expected to benefit from offline consolidation, with revenue growing at 30% CAGR after the initial phase.

Key Uncertainties

• The sustainability of the current momentum is uncertain, with conversion of free users to paid users being a critical challenge.

• The quality of free courses is questioned, with lower engagement and limited tutor support potentially affecting long-term growth.

• The valuation of these stocks is high, and the market may not reward them with significant upside in the long term.

Conclusion

The online K-12 education sector in China has seen a significant rally due to the impact of the pandemic. However, the valuation is high, and the conversion of free users to paid users remains a key challenge. The report recommends TAL for sustainable growth, GSX for momentum chasers, and New Oriental for offline opportunities. The future of online and offline tutoring is expected to be complementary, with online offering accessibility and offline providing quality.