Support for private higher education unchanged
? The Ministry of Education recently announced its major focus for 2022, clearly stating its support for the vocational education and private higher-education sectors.
? The success of a recent acquisition case in the higher-education sector indicates the M&A channel for listed education companies is still open.
? The private higher-education companies under our coverage have already submitted or are preparing to submit their applications to convert their schools into for-profit higher-education schools; we expect the conversions to be completed by end-2022. Private higher-education schools in Shanghai have completed the process.
? Our top pick for the higher-education sector is China Education Group.
MOE supports vocational education and private higher education
The Ministry of Education (MoE) recently announced its major focus for 2022, clearly stating its support for the vocational education and private higher-education sectors. In the announcement, the MoE reiterated its positive attitude towards private vocational education and collectivized education and encouraged collaboration between vocational education schools and corporates. The MoE will also focus on implementing the non-profit and for-profit system for private-education companies at the provincial level. Establishing a vocational college entrance examination for vocational high school and technical school students will also be a major focus of the MoE in 2022. The announcement indicates the government’s determination to reform the education system and its continued support for the vocational education and private higher-education sectors. We expect the favorable policy to remain stable for the foreseeable future.
Recent M&A case indicates the channel is still open
A US-listed education company recently announced its acquisition of an independent three-year college and a four-year college in China with total student enrollment of over 4,200. The success of this acquisition indicates that the M&A channel for listed education companies to pursue further development is still open. We expect the channel to remain open, as collectivized education is supported by the MoE. China Education Group, under our coverage, has top-ranking experience and capability to acquire and integrate schools, and it will resume its M&A projects once its share price returns to normal.
The implementation of for-profit higher education is ongoing
In Apr 2021, a HK-listed higher education school in Shanghai was approved by the local government to become a for-profit higher-education school. The private higher-education companies under our coverage, such as China Education Group, have already submitted or are preparing to submit applications to convert their schools into for-profit higher-education schools. The companies do not see any delays in the process by the authorities, but the process could be long, as it will involve various transformation procedures with different government departments. We expect the conversions to be completed by as early as end-2022.
Vocational college entrance examination announced
The Chongqing government recently issued a notice about the college entrance examination, making it clear that in addition to candidates for the general college entrance examination, the vocational undergraduate schools can recruit candidates from the vocational college entrance examination. Graduates of secondary vocational schools (including ordinary secondary schools, adult secondary schools, vocational high schools, and technical schools) can participate in the vocational college entrance examination and be admitted to vocational undergraduate programs. Graduates from vocational undergraduate schools will be awarded the same undergraduate degrees and certificates as graduates from general undergraduate schools. We expect other provinces to announce and implement vocational college entrance examinations gradually in 2022.
Our sector top pick is China Education Group
After the recent share price correction, the private higher-education sector is trading at quite a low valuation, in our view. Our top sector pick is China Education Group, because of 1) its strong M&A track record and successful integration of acquired schools, and 2) its large growth potential to benefit from the supportive policy for vocational education.