Why Investors Should Look to China's Vocational Training Space

Beijing plans to attract funding to this education sector as K-12 tutoring suffers.
Anna VodJun 07,2021,18:21

In China’s education stocks, all eyes have been on the tightened environment for K-12 tutoring providers. And it’s not surprising: The top Chinese U.S.-listed educators, New Oriental (NYSE: EDU) and TAL Education (NYSE: TAL), have about halved in value in recent months. Meanwhile, another sector has been overlooked – vocational education. And this space just may be getting more exciting for investors.

On Monday, China's top legislature began discussions on revisions to laws to prop vocational education, as reported by state-run news agency Xinhua Net. The proposal is giving greater autonomy to vocational schools in aim to train more high-caliber technical professionals, attract funding, and strengthen the teacher workforce, according to the medium.

“Proposing that vocational education should enjoy equal importance to general education, the draft calls for leveraging the principal role of enterprises in vocational education and encouraging social participation,” Xinhua wrote.

Here are some Chinese vocational training stocks. Skillful Craftsman Education Technology Ltd. (Nasdaq: EDTK), which provides vocational online education and technology services, inched 1% higher in trading Monday, to $2.43 per share. Zhongchao Inc. (Nasdaq: ZCMD), focusing on medical training, was up 2%, at $1.70 per share. Another small-cap, China Education Resources Inc. (OTC: CHNUF), an ed-tech company, saw no movement, worth 5 cents per share intraday.

Separately, TAL Education Group and New Oriental Education & Technology Group Inc., mentioned above, declined further on Monday. TAL shares were down 11% intraday, at $26.59 apiece, while EDU dropped 8% to $8.59.

Both stocks were downgraded by Credit Suisse today as analysts expect the new bans in tutoring to weigh on the educators’ revenue. Credit Suisse’s Alex Xie downgraded TAL to “underperform,” with a $26 target as compared to the previous target of $54 per share. EDU target was cut to $9.30 from $14 per share, with a “neutral” rating.

The move follows downgrades by other analysts, among them Morgan Stanley and Citigroup.

This month, Beijing is expected to release new regulations in the K-12 after-school tutoring space, including time limits and a possible ban on weekend tutoring.

Topics:ZCMD, TAL, EDU, China, EDTK