ALL SECTIONS

INTERVIEW: Despite Shaky Opening, OneSmart Chairman Sees Strong Growth Ahead

Despite the drop, OneSmart's chairman remained upbeat after his company's first day of trading in New York.

Selina Cheng
    Mar 28, 2018 6:21 PM  PT
INTERVIEW: Despite Shaky Opening, OneSmart Chairman Sees Strong Growth Ahead

OneSmart International Education Group Ltd., a leading provider of after-school education in China, launched its initial public offering today in New York, and like other Chinese companies recently, had a shaky start in its first day of trading.

OneSmart priced its 16.3 million American depositary shares at $11 per share, the low end of its expected range, raising nearly $180 million. After opening at the IPO price, however, the stock quickly fell below $10.40, hitting a low of $10.06 per share before climbing haltingly through the day. OneSmart (NYSE: ONE) closed at $10.80 per share.

 image.png

Despite the drop, OneSmart's chairman remained upbeat after his company's first day of trading in New York.

"I am not worried about today's stock price," said Xi Zhang, in an interview with CapitalWatch. "Our company has very good fundamentals. We are profitable with strong growth and strong cash flow." 

Zhang also tried to give tips to investors. "If you want to invest in Chinese education stocks, the best way is to hold them for the long-term," he said. 

The Shanghai-based company's introduction to the U.S. markets mirrored those of other Chinese companies that have recently conducted IPOs. Also today, Bilibili Inc. (Nasdaq: BILI), a popular video streaming site in China, completed its initial offering and opened well below its offering price. Public offerings in the past week by Shanghai-based GreenTree Hospital Group Ltd. (NYSE: GHG) and Beijing-based Sunlands Online Education Group (NYSE: STG) also fared poorly.

 Who is OneSmart?

Launched in 2007, OneSmart was the largest provider of K-12 after-school education services in China last year measured by revenue, according to its filing with the Securities and Exchange Commission.

With 245 study centers and more than 80,000 students, OneSmart provides tutoring services as well as language and culture programs, capitalizing on the fierce competition among well-to-do Chinese families to ensure their children's academic success. Two-thirds of its revenue is centered in the city of Shanghai.

And the industry has been booming lately. OneSmart, among a spate of Chinese education-related companies to go public in the U.S. in recent months, saw its revenue nearly double over the past three years while net income attributable to shareholders rose nearly fivefold.

image.png

Revenue of K-12 Premium After-School Education Market in China

(Source: Frost & Sullivan Report, from regulatory filing.)

With nearly 5,000 teachers, the company reported revenue of $311.3 million and a shareholder profit of $39.2 million, or about 35 cents per American depositary shares, last year. Each ADS represents 40 Class A ordinary shares.

 Future of the company

The premium after-school education market has great potential in China, as the top five players accounted for only 6.1 percent of the overall premium after-school education market in 2017, according to Frost & Sullivan's research. With a market share of 2.4 percent in that market, OneSmart is the industry leader, but with a lot of space to grow. 

The company said it planned to use half of the net proceeds to expand and enhance content offerings, 10 percent to strengthen technologies, and the balance for working capital and other general corporate purposes. 

Zhang also highlighted the explansion plan during the interview. "We plan to use the procceds from this IPO to expand inside China organically and through acquisitions," he said. 

"We plan to do some acquisitions, to acquire some regional players, because the market needs some consolidation. It is so fragmented. We also plan to expand internationally, gradually and cautiously. Maybe we will do some selected acquisition in North America, Europe and Japan. But right now, our number one priority is still China."

More importantly for all investors, Zhang estimated strong growth potential for OneSmart as he projected "40 percent annual growth over the next three years."

Criticism on school license

The company has been the target of some criticism on Chinese social media regarding the lack of licensing at some of its centers. 

OneSmart disclosed in its filing, because of changes in the law and delays among many municipalities to complete school licensing regulations and reviews, it said, 56 out of OneSmart's 245 study centers currently do not hold permits or registration licenses. Similar issues exist regarding fire safety permits, it said.

However, Zhang told CapitalWatch that "compared to its peer group, OneSmart is one of the best-positioned education companies in China in terms of licensing." 

With that, and other challenges ahead, Zhang said his job now is to "keep doing a good job and make sure we can continue to make a strong financial performance."

MOST VIEWED
YOU MAY LIKE