Goldman Sachs On Chinese Education Stocks: Prefer Private Higher Education To K-12

Following the latest earnings calls by education companies, the prospects of private higher education stocks under coverage seem brighter than that of K-12 stocks, according to Goldman Sachs.

Private Higher Education Schools

Goldman Sachs’ Christine Cho maintained a Buy rating on private higher education stocks China Education Group Holdings Ltd (HK:0839) and China YuHua Education Corporation Limited (HK:6169).

She mentioned that China Education Group and Yuhua were leaders in the Chinese higher education sector and had the ability to further consolidate the market and drive margin expansion.

China Education Group had reported its quarterly results short of expectations, mainly due to a higher number of students enrolled in continuing education programs, which have lower average selling prices, Cho said in the note.

She added, however, that the company had made progress in the newly acquired schools and its long-term growth and consolidation story remained intact.

YuHua’s results beat expectations, driven by strong university growth and margin profiles.

The analyst reduced the price target for China Education Group from 14.60 Hong Kong dollars to 13.5 Hong Kong dollars, while raising for China YuHua Education from 5.10 Hong Kong dollars to 6.30 Hong Kong dollars.

Private Higher Education Schools

Cho downgraded the rating for Bright Scholar Education Holdings Ltd BEDU from Buy to Neutral, while reducing the price target from $10.80 to $9.80. She noted that the company had reported another earnings miss for the fiscal fourth quarter and was facing higher cost pressure from recent acquisitions.

The analyst remained on the sidelines for China Maple Leaf Educational Systems Ltd (HKG:1317), while raising the price target from 2.70 Hong Kong dollars to 2.80 Hong Kong dollars. Although the company reported a revenue miss, its margins were better than expected.

China Maple Leaf Educational Systems had announced an ambitious new five-year plan and a new curriculum, Cho said.

She added, however, that more certainty was needed on the company’s execution on diversifying its revenue stream, improving education quality and increasing capacity utilization.

Price Action

The MSCI Emerging Markets Index slipped slightly to close trading at $260.79 on Wednesday.