TAL's expansion highlights China's shifting demographics
Updated: 2015-02-09 07:55
Students attend classes at a language school in Shanghai, Nov 6, 2014. [Photo/IC]
New Oriental Education & Technology Group Inc's market value 18 months ago was about five times that of its peer, TAL Education Group. Now the two are almost even.
The turnaround is as much an indicator of the different strategies pursued by the two Beijing for-profit tutoring companies as it is about China's shifting demographics. New Oriental got about 85 percent of its revenue from language training and test preparations in fiscal 2014. At TAL, most sales are derived from after-school science-focused courses geared for kindergarten-through-12th grade, or K-12, students.
"The fastest-growing segment is the K-12 segment," says Alistair Way, the emerging-markets investment director in Edinburgh at Standard Life Investments Ltd, which manages about $422 billion. "That's why TAL Education is on such a high valuation multiple compared with New Oriental, because it is purely focused on this segment. There are a large number of Chinese students going abroad to study, so there isn't much growth" from the other market, he says.
New Oriental, whose shares fell 35 percent last year as revenue growth slowed, has seen its market value shrink by almost a half over the past year to $2.9 billion. That compares with $2.4 billion for TAL. While New Oriental remains the biggest of China's publicly traded education companies, it's changing hands at a price-to-earnings ratio that's half TAL's.
Demand for English instruction, the focus of New Oriental since its start in 1993, is slowing as China's opening in the past two decades has improved language skills and offered people the option of traveling abroad for studying. That contrasts with faster growth in the nation's primary and secondary education markets, where parents are spending more on their children's after-school science classes amid rising competition for top high-school and college admission.
Student enrollment at New Oriental, which owns 713 learning centers, rose 10 percent from a year earlier for the three months through November, compared with a 36 percent increase at TAL, according to their earnings reports released last month. Revenue at New Oriental will grow less than 10 percent in the year to May 31 compared with a pace of 35 percent in fiscal 2012. TAL will see sales surge 36 percent in fiscal 2015 and 32 percent in 2016, analysts' projections show.
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