Deutsche Bank Markets Research Asia Industry Date China 4 January 2018 Consumer China Education Hotels / Leisure / Initiation of Coverage Gaming Tallan Zhou Karen Tang Research Analyst Research Analyst Bright future (+852 ) 2203 6464 (+852 ) 2203 6141
[email protected] [email protected] K12 after-school tutoring is a secular growth sector Top picks We analyze the supply/demand condition of China's K12 after-school tutoring New Oriental (EDU.N),USD101.57 Buy market and conclude the sector will likely see secular growth in the next five TAL Education (TAL.N),USD29.71 Buy years. We believe positive demographic growth, an increased number of Source: Deutsche Bank wealthy families, and greater education awareness are the demand drivers. However, China's supply of top universities is still insufficient and the Companies Featured admission rate remains low. This has led to surging needs for after-school tutoring services. We forecast the K12 tutoring market to see a 13-14% CAGR New Oriental (EDU.N),USD101.57 Buy in 2017-22E, assuming: 1) K12 students see a CAGR of 3%, 2) tutoring 2017A 2018E 2019E penetration rate climbs 2.5% p.a.; and 3) ASP rises (like-for-like basis) 5% p.a. P/E (x) 26.3 42.0 33.6 EV/EBITDA (x) 17.0 33.6 25.3 More demand for education in the long term Price/book (x) 6.7 7.8 6.4 China’s Gaokao (college entrance exam)-takers as a percentage of the newborn population increased to 65% in 2016 from only 25% in 2002, while TAL Education (TAL.N),USD29.71 Buy the birth rate remained unchanged at 0.11-0.12%.