As the end of 2023 approaches, looking back at the trend of the Hong Kong stock market this year, the three major indices have collectively fallen, but some education stocks in Hong Kong seem to have seen an independent upward trend.
The Hong Kong stock market is closed from Monday to Tuesday this week. As of the close of last Friday (December 22nd), New Oriental S (09901. HK), ThinkTok Education (01769. HK), Excellence Education Group (01773. HK), and Tianli Education (01773. HK) have risen 89.82%, 64.15%, and 61.22% respectively for the year.
Note: The rise and fall of Hong Kong education stocks since the beginning of this year
New Oriental saw a surge of nearly 90% in 2023. Analysts point out that the company's surge this year may be related to the success of its business transformation and favorable industry policies.
The transformation of its subsidiary business has attracted market attention
In fact, education stocks, including New Oriental, experienced a difficult period of track transition in 2021. At that time, the General Office of the Communist Party of China Central Committee and the General Office of the State Council issued the "Opinions on Further Reducing the Homework Burden and Extracurricular Training Burden of Students in Compulsory Education" on July 24 of the same year, which basically closed the door to extracurricular subject training for primary and secondary school students.
Note: Announcement on July 24th
The opinion points out that strengthening and optimizing free online learning services. The education department should collect and develop rich and high-quality online education and teaching resources, utilize national and local education and teaching resource platforms, as well as high-quality school network platforms, to provide students with high-quality thematic education resources and learning resources covering all grades and subjects for free, promote balanced development of education resources, and promote educational equity.
Subsequently, multiple education and training companies successively announced the path of transformation, such as Ape Tutoring trying to sell down jackets, and NetEase Youdao choosing to continue to focus on chess projects. As an education and training giant, New Oriental is also attempting to transform in multiple fields, including the well-known live streaming sales business in the current market.
For the live streaming sales business, it currently belongs to New Oriental Online (01797. HK), a subsidiary of New Oriental. The company's live streaming journey has not been smooth sailing. According to relevant statistics, Yu Minhong sold a total of 5 million yuan of agricultural products in the first live broadcast of agricultural products (December 29, 2021). According to the official data of Tiktok, Yu Minhong ranked 16th on the anchor list with goods that night.
Even the Economic Daily published a commentary titled "New Oriental should not copy Li Jiaqi", which sparked attention and discussion from all parties. The article points out that objective conditions determine the great challenges of agricultural live streaming from the market to regulation, and New Oriental's transition from off campus training to live streaming e-commerce is not easy.
After a six-month low period, New Oriental Online's live streaming sales performance has been lukewarm. Until a broadcaster named Dong Yuhui gained popularity through humorous jokes and professional bilingual teaching.
For "bilingual sales", New Oriental Online anchors not only introduce the product's functions and features in Chinese during their live broadcasts, but also immediately teach English vocabulary around the product's name and characteristics. They even hold up a small blackboard to introduce the pronunciation and roots of words.
As the live streaming sales business continues to grow, New Oriental Online has decided to fully transform into live streaming sales. On January 5, 2023, New Oriental Online announced its intention to change its dual foreign name from "New Oriental Online Technology Holdings Limited" to "Oriental Selection Holdings Limited".
On November 21st, the renamed Dongfang Zhenxuan sold all its education business to New Oriental for 1.5 billion yuan, transforming it into a live streaming sales company.
According to New Oriental's performance for the first quarter of the 2024 fiscal year announced at the end of October this year, its net revenue increased by 47.7% year-on-year to $1.1 billion. They explained that this was mainly due to the group's education oriented new business, as well as the increase in revenue driven by Oriental Selection's self operated products and live streaming e-commerce business.
Furthermore, according to the 2023 financial report released by Dongfang Zhenxuan in August this year (from June 1, 2022 to May 31, 2023), the total revenue was 4.5 billion yuan, a significant increase of 651% year-on-year; Net profit of 971 million yuan, net loss of 534 million yuan in the same period last year; The revenue of live broadcast with goods was 3.9 billion yuan, and the GMV (total commodity transactions) was 10 billion yuan. The GMV from Tiktok accounted for the majority. The number of orders paid on Tiktok was 136 million.
Industry policy clearance
In addition to the high attention paid to live streaming sales, policies related to the education and training industry have been implemented one after another. As pointed out by Tianfeng International, since 2021, according to policy requirements, education and training institutions have been required to close the K9 discipline and shift towards non disciplinary development. At present, consumers' choices mainly focus on areas such as mathematical thinking and humanistic literacy. Local governments are responsible for interpreting and implementing regulations on disciplinary/non disciplinary classification. For example, in Guangdong, if the subject content of the curriculum is less than 50%, it is defined as non disciplinary. The specific regulatory work is implemented by the local government.
Tianfeng also pointed out that in 2021, due to the impact of policies and the epidemic, the market's expectations for the education industry have decreased significantly. However, in reality, high-quality educational enterprises are still striving to survive and explore.
At present, policy expectations are relatively stable. After three years of implementing the dual reduction policy, the securities firm believes that the future development of the enterprise has a relatively stable external environment. After the supply is cleared, the advantages of top enterprises will become more significant.
The institution claims that New Oriental's business has blossomed and revitalized in multiple areas
Zhejiang Securities pointed out that as a leading enterprise in the field of education and training in China, New Oriental has actively transformed after experiencing "double reduction". Its business foundation in overseas exams and consulting, adult and vocational education, etc. has been stable, benefiting from supply clearance and demand recovery; With thirty years of accumulated organizational strength and outstanding performance in the fields of quality education and live streaming e-commerce, we have laid out our cultural and tourism business, and our business has blossomed and revitalized in multiple areas.
The securities firm pointed out that New Oriental is currently focusing on developing quality literacy and live streaming e-commerce businesses. Since the third quarter of fiscal year 2023, the company's revenue has achieved positive growth and increased by 64% year-on-year in the fourth quarter of fiscal year 2023, reaching $860 million. The recovery of demand has accelerated the expansion speed of production capacity.
In addition, New Oriental has provided a forecast for the second quarter of the 2024 fiscal year (September 1, 2023 to November 30, 2023), with a total net revenue of between $785 million and $804.2 million, an increase of 23% to 26% year-on-year.