CFO INTERVIEW: Puxin Aims to Become Top Consolidator in China's Education Market
Puxin's chief financial officer, Peng Wang, says China's fragmented education industry will transform in the near future with the company becoming a top consolidator.
Puxin Ltd. made its debut on Wall Street today, completing an initial public offering at $17 per share before immediately soaring more than 20 percent and maintaining that level throughout the day.
The Beijing-based provider of after-school education ended the day at $21 per American depositary share, up $4 overall.
Puxin has risen in less than four years to being one of the top players in China's competitive after-school tutoring market. It is already the third-largest by student enrollments, according to research by Frost & Sullivan. In 2017, nearly 1.3 million students enrolled in the school's programs, representing a 180 percent increase from 2016. In the first quarter of this year, student enrollments rose 41 percent year-over-year to 261,000.
What makes its school network different, according to Peng Wang, the chief financial officer of Puxin, is its business model of acquisition and integration.
The company identifies "underperforming" schools, acquires them, and implements its management system developed by Puxin's team. Of such potential schools in China, the company has identified 1,550 and acquired 48 since its founding in 2014. Overall, the Puxin network comprised 397 learning centers in 35 Chinese cities as of March 31, according to the company's prospectus.
Puxin is headed by 42-year-old Yunlong Sha, who previously served as senior vice president at New Oriental Education & Technology Group (NYSE: EDU) and has 20 years of experience in the industry. Last year, Sha brought on Wang, who shares his vision. Wang is a former principal at New Oriental and a graduate of the university that Sha attended, Renmin University of China.
Wang gave an exclusive interview to CapitalWatch on the day the company raised $122.4 million by offering 7.2 million shares on the New York Stock Exchange. Citigroup Global Markets Inc. and Deutsche Bank Securities Inc. acted as underwriters.
Wang shared Puxin's hopes for the transforming education industry in China, its plans on expansion, and the philosophical meaning behind its ticker symbol, "NEW."
CapitalWatch: Congratulations on a successful IPO. Now that Puxin has become a public company, how do you feel?
Peng Wang: We are glad that we are now a public company with better credibility in terms of attracting talent, and in terms of building with future [acquirees] of the business, so we are happy with the IPO process.
CW: What was the biggest challenge Puxin had to overcome to get to where you are today?
PW: We are the first consolidator in the after-school tutoring industry [in China]. There maybe have been a few predecessors, but their models were totally different, and their trial was unsuccessful.
So, the biggest challenge for us for the past three-and-a-half years has been to persuade the founders and owners [of schools which Puxin approached for acquisition] to believe in our model and in the future success of those schools.
Fortunately, little by little, with a proven record of successful acquisition and integration, we have established ourselves as the most preferable dealer in the eyes of those founders.
CW: Why did Puxin's founder, Yunlong Sha, think it's a good idea to start the company after his experience with New Oriental?
PW: As a senior vice president in charge of all the learning centers at New Oriental, Mr. Sha established himself as a top talent in the space. He left New Oriental in 2014 because he envisioned a new opportunity in the after-school market.
The market is huge, with a highly fragmented structure. Last year, the top five players [in the education industry] in China accounted for only 3 percent of the market share. Mr. Sha believed that with such a fragmented structure in a huge market there would be an unprecedented opportunity for consolidation. He envisioned the [after-school education] market in the shape of a dumbbell, with the top three players accounting for 10 percent, or even 15 percent, of the market. And Puxin would become one of those top players.
I majored in economics when I studied for my master's and Ph.D., so I also believe that the market structure in the future will transform. I shared the same vision and the same dream as Mr. Sha.
Puxin's chairman, chief executive officer, and founder, Yunlong Sha,
at the company's initial public offering Friday.
CW: Puxin has grown considerably since its founding in 2014. To what do you attribute the company's fast growth?
PW: Mr. Sha, together with the co-founders of Puxin, put their accumulated expertise in the industry to develop a system called PBS [Puxin Business System]. Basically, it is a highly standardized modular operation manual.
After taking over a newly acquired school, we would ask its principal headmaster to hold meetings, and we prescribe the content of these meetings to achieve certain purposes on Day One, and we also have prescriptions for the first seven days, the first 30 days, and the first 100 days.
Our principals would integrate this Puxin business system so that step by step, little by little, we could turn around those underperforming schools.
CW: Some of your competitors (such as Ambow Education, which took nearly a year to go public, and TAL, which just got hit by short-sellers, plus others whose stock price has suffered) find it tough to trade on the NYSE. Why did you choose this market, and how will you be different?
PW: The reason we chose the New York Stock Exchange is because we believe this is a place where each company will be fairly valued because of its transparency, disclosure system, and the sophisticated investor base.
If you happen to do something wrong, you will be punished by the market. However, if you have proved that you can deliver sustainable, healthy growth, you will be rewarded by the market no matter whether there might be short-term [complexities].
We believe in the transparency, in the internal governing structure of Puxin, and we are confident that we will be fairly valued here.
As to our difference to other top players, the key difference is our business model. The founders and co-founders are not only really good at the organic growth of operating learning centers, but we also have another growth engine, which is unique in the industry, and that is acquisition and integration.
CW: What's the next milestone in your plans?
PW: In the short-term, our next milestone will be to break even for the company this year, and to further prove our model of acquisition and integration.
CW: How about long-term plans? Are you thinking about expanding overseas?
PW: If we're talking about 2018 and 2019, we have no concrete plans to expand overseas.
In about five to eight years in the future – yes, we do have plans to expand to education markets like the United States or the United Kingdom.
CW: I find it ironic that Puxin's ticker symbol is "NEW," considering the company's ties to New Oriental. What's the meaning behind it?
PW: [Laughs] That's interesting, I have not thought about why Mr. Sha chose this ticker.
I think it has little to do with New Oriental. Mr. Sha has a strong personal interest in the ancient Chinese philosophies, like Taoism and Confucianism. One of his favorites is Taoism. The name of Puxin – literally, pu means "jade" – the raw stone which has not been polished, and xin means "new." It is a phrase in Taoism, so I think the main reason Mr. Sha chose "NEW" [as the ticker symbol] is representing xin, the Chinese character in our brand.
The Puxin team stands underneath its flag at the New York Stock Exchange Friday.