As students return to school this week, the stock we are featuring is as the Stock of the Week is China East Education (00667), the largest vocational training education provider in the country.
China East reported mixed results in the first half of 2023. However, this didn’t stop investors, as shares jumped 15% after the company posted its earnings. In our view, this reflects investor optimism that student enrollment will rebound, and that the company could increase tuition fees. Our equity analyst, Cheng Wang, considers the stock undervalued and believes there is room for further growth.
Based on the last available youth unemployment data, China’s jobless rate for 16 to 24-year-olds in urban areas hit a record high of more than 20% in June. China East has observed strong demand for short-term programs targeting adults and recent graduates.
However, intensified efforts by the Chinese government to attract students to vocational streams, instead of academic streams, has increased competition from public vocational schools. Wang emphasizes the significance of China East’s brand equity, particularly in culinary arts education, which is supported by a high job placement success rate. While rising sales and marketing expenses may affect profit margins, Wang expects enrollment growth to help scale costs and expenses.
For Morningstar, I am Kate Lin
China East Education Stock Bulls Say
- Negative sentiment toward the education sector eases with no additional or only mild regulatory and policy changes.
- Domestic expansion and new mega-campuses will bring in more students and drive growth.
- Culinary arts education segment will regain growth as China East emerges from the pandemic.
China East Education Stock Bears Say
- China East’s core segment culinary arts education enrolment is undermined by public vocational schools.
- Lower new student enrolment during the pandemic negatively affects future periods.
- Rapid school expansion will lead to lower margins.
.jpg "Kate Lin")
