中国K12教育：模拟在线教育对线下监管的影 响和潜力

1、2 April 2019 Asia Pacific/China Equity Research Education ServicesResearchAnalystsThomas 852 21016164 HYPERLINK mailto:thomas.chong AlexXie852 21017462 HYPERLINK mailto:alex.xie China K12 Tutoring SectorSECTOR FORECASTSECTOR FORECASTModeling offline regulation impact and potential from online educat

2、ionFigure 1: We expect EDU and TAL to take more market shares post regulation with resilient offline and fast-growingonline6.3%4.8%6.3%4.8%4.3%3.7%3.5%2.8%1.6%1.8%2.7%2.1%6%5%4%3%2%1%0%2016201720182019E2020EEDU TALSource: Credit Suisse researchOffline business is still resilient. Though regulation t

3、ightening caused slowdown in capacity expansion and additional costs to EDU and TALs offline business, we believe the offline business of EDU and TAL is still resilient. We expect higher GPM in FY20-21 as utilisation rate rises under slower offline expansion. Consolidation continues post regulation.

4、 We expect EDU and TALs combined market shares in Chinas K12 tutoring market to increase from 6.5% in 2018 to 8.3% in 2019 and 10.6% in2020.Secular growth opportunity from online. Riding on the trend of technology-driven innovation and strong demand for quality education, we expect the online penetr

5、ation rate of K12 tutoring market to rise from 7% in 2018 to 16% in 2021. We believe TAL and EDU are well-positioned to capture secular growth opportunity fromonline.Prefer EDU to TAL on clearer offline expansion plan. We believe the market has overestimated policy risk in the near term and underest

6、imated the potential of online education in the long run. We like EDUs clear plan to expand offline capacity and strengthen online capability on undemanding valuation. We also believe TAL should be able to reaccelerate its offline expansion with the dual teacher model. We roll over our P/E based val

7、uation for profitable offline business from FY19 to FY20 and increase our SOTP-based TP for EDU and TAL to US$112.7 (from US$88.4) and US$44.3 (from US$36.6), respectively. Key risks: (1) adverse regulatory policies; and (2) failure in online productimprovement.DISCLOSURE APPENDIX AT THE BACK OF THI

8、S REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Creditto do in its As a be the a of of as a in Focus charts and tableFigure 2: We expect slower offline capacity expansion post regulationtightening40%30%40%30%2

9、2%22%25%24%20%14%40%35%30%25%20%15%10%5%0%Figure 3: We expect TAL to take much more market shares in online than inoffline13.2%9.8%13.2%9.8%6.3%3.2%1.9%0.2%1.4%0.3%0.5%0.8%12%10%8%6%4%2%FY18FY19EFY20EEDUTAL0%20162017EDU2018TAL2019E2020ESource: Company data, CreditSuisseestimatesSource: Credit Suisse

10、estimatesFigure 4: X revenue contribution to TAL is risingrapidlyFigure 5: We expect EDUs offline K12 revenue growth rate to exceed TALs Peiyou inFY208006004002000FY17FY18FY19EFY20EFY21EXsrevenueas%ofTALsrevenue30%US$US$mn27%1,34520%13%7177%5%3314911920%15%10%5%0%70%60%50%40%30%20%10%0%58%57%58%57%4

11、7%46%32%36%40%35%38%29%EDUsK12tutoringTALsPeiyouSource: Company data, CreditSuisseestimatesSource: Company data, Credit SuisseestimatesFigure 6: Peers compstableCompanyTickerCcyLastpriceTargetPricePotentialMkt cap(USD mn)2018PE201920202018PB201920202018PS20192020China education peersUS listed China

12、K12 tutoringNew OrientalEDU.NUSD89.04112.727%14,13036.83.93.0TALTAL.NUSD36.0344.323%20,43958.444.94.7RISE EducationREDU.OQUSD9.8759623.019.34.03.02.42.0OneSmart*ONE.NUSD8.101,32018.013.48.01.5Average39.4x27.8x20.5x8.3x6.5x4.9x5.7x3.7x2.8xUS listed K12 school operatorRYB EducationRYB.NUSD6.

13、5419139.228.615.55.01.00.8Bright Scholar*BEDU.NUSD10.401,28926.920.817.53.02.9Average33.0 x24.7x16.5x4.0 x3.9x3.4x1.3x2.2x1.8xGlobal education peersUS K12 educationBright Horizons*BFAM.NUSD125.757,287K12 Inc*LRN.NUSD34.181,37546.441.237.0Average42.8x38.1x33.9x9.3x6.2x4.8x2.6x2.4x2.3xNote:

14、 Close price as of 1 April-2019. Source: Reuters for companies marked with *, Credit Suisse estimates for the rest.We expectEDUandTALstotalmarketshares inChinasK12tutoringmarketto increase from6.5%in 2018 to 10.6% in2020We expect the penetration rate of K12 tutoring market to rise from 7% in 2018 to

15、16%in We believe TALandEDU are positioned to seculargrowth opportunities in We prefer EDU to oncleareroffline capacityexpansionplanModellingofflineregulationimpactpotential from onlineeducationResilientoffline:Adapttoregulationinconsolidation trend tocontinueThough regulation tightening caused slowd

16、own in capacity expansion and additional costs to EDU and TALs offline business, we believe the offline business of EDU and TAL is still resilient. We expect higher GPM in FY20-21 as a result of slower offline expansion as utilisation rate rises to offset cost pressure from regulation. We view stron

17、g demand for quality tutoring and market consolidation could continue post regulation. We expect EDU and TALs combined market shares in Chinas K12 tutoring market to increase from 6.5% in 2018 to 8.3% in 2019 and 10.6% in 2020.Enhanced online models to expand the boundary of leading playersRiding on

18、 the trend of technology-driven innovation and strong demand for access to quality education resources, we expect the online penetration rate of K12 tutoring market to rise from 7% in 2018 to 16% in 2021. We view data-driven operation optimisation and advanced technologies as the two key drivers to

19、improve the performance of online K12 tutoring. We expect the user experience of dual teacher model in the offline learning centres to reach the current level of face-to-face classes in 2019-20. We expect pure online models to reach such level in 2022. We believe online education models should evolv

20、e much faster than offline education. Leading players have been exploring various online education models to cater to market demand and accelerate their expansion. The market is large enough for multiple models to find suitablecustomers.Investment in online creates value in the long termAs leading p

21、layers of online K12 tutoring have made significant progress in terms of user experience and study efficiency in 2018, we believe the industry is going to soar and deliver secular growth with higher penetration. We believe industry leaders (TAL and EDU) with deep moats in national brand, advanced te

22、chnologies, teaching talent pool, and operational expertise are best positioned to capture growth opportunities in online tutoring. TAL is leading the trend in online. We expect pure online education revenue of TAL to register 146% CAGR for FY18-20 and reach US$717 mn in FY20. The revenue contributi

23、on of X to TAL is expected to exceed 13% in FY19 and 20% in FY20. EDU is strengthening its online capability with its differentiated small class model. For Koolearn of EDU, we expect revenue from K12 to register 138% CAGR for FY18-20 and reach US$74 mn in FY20. The contribution of K12 in Koolearn is

24、 expected to rise from 13% in FY18 to 19% in FY19 and 29% inFY20.Prefer EDU to TAL on clearer offline expansion planWe believe the market has overestimated policy risk in the near term and underestimated online educations potential in the long run. We like EDUs clear plan to expand offline capacity

25、and strengthen online capability under undemanding valuation. We also believe TAL should be able to reaccelerate its offline expansion with dual teacher model. We prefer EDU to TAL on its undemanding valuation and clearer offline capacity expansion plan to take more market shares post regulation tig

26、htening. We roll over our P/E based valuation for profitable offline business from FY19 to FY20 and increase our SOTP-based TP for EDU and TAL to US$112.7 (from US$88.4) and US$44.3 (from US$36.6), respectively. Key risks in the K12 tutoring industry include: (1) adverse regulatory policies; and (2)

27、 failure in online productimprovement.We estimate over 20% of tutoring institutions were shut down bygovernmentResilient offline: Adapt to regulation in 2018; consolidation trend to continueKey changes post regulation tighteningThe Ministry of Education issued a number of policies to regulate the af

28、ter-school tutoring market in 2018. By 30 December 2018, the government checked a total of 401,050 after- school tutoring institutions and found 272,842 (68% of total) institutions with compliance issues. Government has rectified 269,911 tutoring institutions in 2018, which account for 98.93% of ins

29、titutions with compliance issues.Licensing approval: We estimate over 20% of tutoring institutions were shut down by government, we also estimate slower learning center expansionThe key policy in the regulation is that all learning centres of tutoring institutions must obtain both a business operati

30、on license from commerce authorities and an education license from education authorities. A license cannot cover the whole region and each new learning centre branch should obtain a new license. Most of the small-sized tutoring institutions did not have respective licenses before the nationwide regu

31、lation inspection and the government only issued new education licenses to institutions that meet the standards in learning centre conditions and teaching (for example, no incumbent public school teachers). We estimate over 20% of tutoring institutions were shut down in 2018. Though some of small tu

32、toring providers changed their format and continue their operations covertly, we expect continuous government inspection on these institutions. We expect consolidation in the after-school tutoring market to accelerate with strong demand of parents and students and less local tutoringinstitutions.For

33、 EDU and TAL, though both companies were able to modify their learning centres and obtain related licenses, we expect slower learning centre expansion as a result of regulation because: (1) the regulatory environment is not as favourable for high growth rate as before, companies need time to accommo

34、date to regulatory changes; (2) the companies can focus more on education quality during the transitionperiod.Figure 7: Regional data points of tutoring institutionshutdownThe number oftutoringinstitutions that were shutdownTotal number oftutoringinstitutionschecked% of shutdownJiangsu12,00817,16770

35、%Tianjin4,1255,67573%Henan4,90424,92420%Guangzhou5752,26325%Guiyang4702,65718%Source: Ministry of Education, Sina NewsHigher learning centre requirementsled to changein learning centrespace and additional rental costThe policy required all learning centres to have at least three square meters area p

36、er student enrollment and obtain all fire safety and health related approvals. Learning centres for junior kids under 14 years must not be located above the third floor. Both EDU and TAL have incurred additional rental costs to comply with these requirements and have even changed locations of some l

37、earning centres.We expect requirement of standard teaching qualification to increase cost in training existing teachers and hiring new licensed teachersBefore the regulation, about 50% of teachers of EDU and TAL had official teaching qualification, this was since the government had not specified suc

38、h requirements forEDU plans tosolve teachinglicensing qualification issueend-FY19Weexpectsignificantslowdowninoffline expansion butmarginsto holduptutoring institutions. The new policy requires all tutoring class teachers to obtain teaching qualification through passing licensing exams. All main tea

39、chers were required to participate in the written test in Nov-2018 and interview in Jan-2019. Both companies provide training and study time for teachers to help them pass the exam. We estimate overall passing rate for teachers of both companies to be 70-80%, which is much higher than the industry a

40、verage of 30%, since EDU and TAL recruit high-quality teaching staff from Tier 1 universities in China. We also expect the government to allow more grace period to those who failed in this round of teaching qualification licensing exam. For new teacher recruitment, EDU requires teaching qualificatio

41、n and its compensation is one of the best in the industry. EDU plans to solve the issue of teaching qualification by the end ofFY19.Payment schedule change had one-off impact on deferred revenueRegulation bans collection of tuition fee for over a three-month period. Both EDU and TAL have already cha

42、nged their tuition fee payment schedule and divided the original spring class to two terms of payment. As a result of such adjustment, deferred revenue growth for the coming year may not reflect new student enrollment and gross billings as before. For example, TALs deferred revenue as of 30 November

43、 2018 decreased by 19% YoY, mainly due to schedule change of tuition feepayment.Content change does not weaken demand significantlyRegulation bans teaching ahead-of-standard content and advanced competition content in after-school tutoring. Though TAL changed its math teaching materials significantl

44、y in the summer of 2018 to comply with the standard, its retention rate was stable and only a few top students left for more advanced content. We believe the good result of content change is due to: (1) most students still need tutoring in normal test rather than advanced math competition to get ahe

45、ad of peers; and (2) TAL has great content development capability to help student gain academic skills with standardcontent.Modelling impacts of regulation: Significant slowdown in growth, but margins to hold upWe expect capacity expansion of EDU in terms of total square meters of classroom space to

46、 slow from 40% in FY18 to 22% in FY19 and FY20, before accelerating to 24% in FY21. We also assume rental cost per square meter to increase by 10% YoY (vs 5% in usual) in FY19 due to higher regulatory requirements for learning centres. We assume the teaching staff cost per headcount to increase by 1

47、0% in FY20 (vs the usual 7%). But efficiency in teaching staff could improve with a higher utilisation rate of teachers capacity.As a result of the above, we expect offline revenue growth to slow from 35% in FY18 to 27% in FY19-21. We estimate rental cost as % of revenue to increase from 13.1% in FY

48、18 to 13.7% in FY20. We expect teaching fees as % of revenue to decrease from 25.0% in FY18 to 24.6% in FY20. Offline GPM is expected to decrease from 56.3% in FY18 to 56.1% in FY19, but recover to 56.4% in FY20. Overall GPM is expected to decrease from 56.5% in FY18 to 56.1% in FY19, but recover to

49、 56.6% inFY20.Figure 8: Modelling impacts of regulation on EDUs growth andcostsUS$ mnFY16FY17FY18FY19EFY20EFY21ETotal revenue1,4781,8002,4473,1394,0355,193YoY21.7%36.0%28.3%28.5%28.7%Offline revenue1,4301,7362,3492,9853,7814,786YoY21.4%35.3%27.1%26.6%26.6%Rental cost assumptions:Total square meter o

50、f classrooms (k)1,1101,4201,9882,4252,9593,669YoY7%28%40%22%22%24%Rental cost per square meter(157)(140)(161)(178)(186)(196)Rental cost(174)(199)(321)(431)(552)(718)Rental cost as % of offline revenue12.2%11.5%13.7%14.4%14.6%15.0%Rental cost as % of total revenue11.8%11.1%13.1%13.7%13.7%13.8%Teachin

51、g cost assumptions:Full-time teachers12,40016,00021,00025,20028,98033,617Contract teachers5,0006,0007,0004,2004,8305,603Weighted teacher headcount (contract as 0.5 HC)14,90019,00024,50029,40033,81039,220YoY28%29%20%15%16%Total student enrollment (k)3,644,4004,858,6006,329,4007,823,1389,626,37211,836

52、,587Student to teacher ratio245256258266285302Teaching cost per headcount (US$ k)(25)(24)(25)(27)(29)(31)Teaching fees and bonus(370)(450)(612)(786)(994)(1,234)Teaching fees as % of revenue25.0%25.0%25.0%25.0%24.6%23.8%Other COGS(71)(100)(133)(161)(206)(266)Other COGS as % of revenue4.8%5.6%5.4%5.1%

53、5.1%5.1%Offline GP8311,0061,3221,6752,1332,729Offline GPM58.1%58.0%56.3%56.1%56.4%57.0%Cost of revenues(614.4)(749.6)(1,065.7)(1,377.1)(1,751.2)(2,217.6)Overall gross profit8641,0501,3821,7622,2842,976Overall GPM58.4%58.3%56.5%56.1%56.6%57.3%Source: Company data, Credit Suisse estimatesWe expect cap

54、acity expansion of TAL in terms of total number of small classrooms to slow from 30% in FY18 to 14% in FY19 before accelerating to 24% in FY21. We also assume rental cost per square meter to increase by 10% YoY (vs 5% in usual) in FY19 due to higher regulatory requirements for learning centres. We a

55、ssume the teaching staff cost per headcount to increase by 10% in FY20 (vs the usual 7%). Other than capacity expansion,we also expect student enrollment growth due to ramp-up of newly added learning centres and subject expansion of each student.As a result of the above, we expect offline revenue gr

56、owth to slow from 61% in FY18 to 37% in FY19 and 28% in FY20. We estimate rental cost as % of revenue to decrease from 13.7% in FY18 to 11.8% in FY19 and 10.6% in FY20. We expect teaching fees as % of revenue to decrease from 23.4% in FY18 to 21.7% in FY20. Offline GPM is expected to rise from 48.5%

57、 in FY18 to 51.9% in FY19 and slightly decline to 51.7% in FY20. Overall GPM is expected to rise from 48.6% in FY18 to 53.2% in FY19 and further to 53.7% inFY20.Figure 9: Modelling impact of regulation on TALs growth andcostsUS$ mnFY18FY19EFY20EFY21ETotal revenue1,7152,5193,5225,023YoY64%47%40%43%Of

58、fline revenue1,5962,1882,8053,679YoY61%37%28%31%Rental cost assumptions:No. of small class classrooms10,31711,71814,06217,577YoY30%14%20%25%Rental cost per small class classroom (US$ k)(23)(25)(27)(28)Rental cost(235)(297)(375)(492)Rental cost as % of offline revenue14.7%13.6%13.4%13.4%Rental cost a

59、s % of total revenue13.7%11.8%10.6%9.8%Teaching cost assumptions:Full-time teachers17,86822,15528,17937,543Contract teachers2,5113,1133,9605,276Weighted teacher headcount (contract as 0.5 HC)19,12423,71130,15940,181YoY51%24%27%33%Small class student enrollment (k)5,1697,2549,68813,295Student to teac

60、her ratio270306321331Teaching cost per headcount (US$ k)(21)(23)(25)(27)Teaching fees and bonus(401)(547)(766)(1,092)Teaching fees as % of revenue23.4%21.7%21.7%21.7%Other COGS(246)(334)(489)(739)Other COGS as % of revenue14.3%13.3%13.9%14.7%Offline gross profit7741,1351,4501,925Offline GPM48.5%51.9