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Ambow’s Patented Software & New Education Model Generating Healthy Sales Increases In Trillion Dollar Education Market

Summary

Founded in Silicon Valley, Ambow Education Group has built an impeccable reputation for excellence in China and is first to own U.S. patented AI learning technology that leads education sector.

$62 million cash, plus other assets over $90 million will be used for sales-increasing acquisitions, and 2018 9-month sales of US $52.8 million versus US $45 million for the same.

Launched and plans to expand its China/U.S. Cross-Border College program for Chinese diploma and U.S. bachelor’s degree by buying Bay State College that is first college offering Cross Border degrees.

K-12 schools all by themselves have steady and growing cash flow valued at $300 million (2.5X current market cap) if spun off or sold.

Market comps demonstrate Ambow shares are highly undervalued plus represent strong growth potential.

Overview

The enormous demand for education to fuel the world economies by providing literate and skilled workers, professionals, and educated society members has never been greater. Global education market valued at US $1.3 Trillion in 2017 and $445 Billion in China by 2020.

Ambow Education Group(NYSE: AMBO) is a leading national provider of educational and career enhancement services in China and is now entering the U.S. market. Ambow’s business addresses two critical demands in China’s education market; the desire for students to be admitted into top secondary and post-secondary schools, and the desire for graduates of those schools to obtain more attractive jobs.Founded in Silicon Valley andrelocated to China in 2000, Ambow built its core technology innovation system and currently holds a competitive advantage in technology innovation among China’s education services industry.

Online education is exploding and Ambow is a pioneer in the "Internet + Education" model. Ambow awarded patent from the United States Patent and Trademark Office for its innovative Adaptive Computer-Assisted Learning System and Method platform for enhancing learning outcomes, which makes it the first China-based education company to receive a U.S. patent in the adaptive learning methods field.

With its extensive network of regional service hubs complemented by a dynamic, proprietary learning platform, Ambow now services students in 30 of the 31 provinces and autonomous regions within China. In 2017, Ambow acquired Bay State College in Boston, Massachusetts to serve as a model for Ambow’s unique Cross-Border College program that offers Chinese students both a China diploma and a U.S. baccalaureate degree. The Cross-Border College program is expected to provide strong growth because it offers substantial new and needed revenue to many U.S. colleges, and it also appeals to millions of aspiring Chinese citizens.

By creating tech-focused curricula aligned with dynamic industry demand and coupled with the Company's enormous educational resources and expertise; Ambow has assumed a major role in helping Chinese career colleges and schools address five key industry challenges: curriculum development, qualified faculty, practical training, job placement and international cooperation. As an example, we recently established the first college big data laboratory in China for one of our college partners to educate students in all aspects of this advanced field, thus preparing them for highly-skilled jobs in emerging and fast-growing IT industries.

Another exciting development in 2018 was the initiation of field testing for Ambow’s holographic virtual learning environment. The technology was implemented with some of our college partners who, in turn, were inspired by Ambow's innovative approach and have asked to set up additional programs. Ambow management is confident that more colleges and institutions will be engaging with Ambow to help improve their competitiveness and presence in industry.

With a market cap of only $135 million and a share price of $6.15, Ambow shares are undervalued and offer substantial unrealized value and solid growth prospects for 2019 and beyond. Ambow has strong financials, is undergoing a major expansion in China, breaking into the U.S. market with a model that is attractive to U.S. Universities and students, and is expected to generate over $100 million in sales in 2019. Additionally, Ambow’s K-12 schools are valued at $300 million which is in excess of the current market cap for the entire company. With their unique education model that is demonstrating impressive sales gains, and with their new models for expansion, combined with a large number of corporate and college partnerships, the market is likely to soon discover Ambow and revalue shares at well over $500 million, or closer to $22 per share based only on current metrics and comps.

Ambow Entering U.S. with First Acquisition of Bay State College

Ambow highlighted their progress in a recent Letter to Shareholders.“Following the acquisition of Boston-based Bay State College in November 2017, Ambow started to implement significant operational improvements, which continued throughout 2018, as part of our near- and long-term strategic goals, including the restructuring of Bay State's management team, and optimizing the college's operations, financial efficiency and student enrollment.”

“Starting with Bay State College, we moved quickly to initiate the launch of the first Cross-Border College Program (between China and U.S. colleges) in the fourth quarter of 2018. This program is designed to fulfill demand from Chinese students wanting to earn a bachelor's degree in a popular major, serving as the basic foundation to the start of a career in China or in the United States. The program will allow thousands of Chinese students who now receive three-year diplomas from Chinese colleges - the equivalent of an associate degree from a U.S. college - to continue their education with a two-year advanced education program and earn a bachelor's degree from Bay State College or another U.S. college.”

“The Cross-Border Program has been very well-received among our Chinese college partners, and certain cooperation agreements and integration plans have already been implemented. This program further validates our mission to provide "Better Schools, Better Jobs, Better Lives" to our students by leveraging Ambow's established expertise, vast resources and diversified channels in the education space. Ambow's unique industry-leading position continues to benefit our core business while we explore additional growth opportunities, including the entry into new verticals.”

“As a recognized and highly respected educational services provider, we are excited about the year ahead and our ability to expand Ambow's brand and market position in both the United States and China through continued delivery of our powerful learning platform, the initiatives of entry into new verticals, and a deepening of cross-border relationships with other educational providers.”

Ambow is highly undervalued:

Considering Ambow’s current sales, Ambow’s Price to Sales ratio of 1.9 is well below the industry average of 6.85. Based on Ambow’s current run rate of $70 million per year, the average Price to Sales ratio of 6.85, commands closer to $22 per share from its current price of $6.16 per share. And this valuation does not factor in the projected sales of $100 million for 2019.

Ambow’s unique education model is growing rapidly with the potential to generate very large revenues as they continue to grow in China. With the addition of their strategy to enter the U.S. market, sales growth can become quite impressive since Ambow is now also delivering very attractive internet based solutions for a very large market.

Risk factors

Ambow is exposed to many commonly encountered risk factors such as the inability to raise capital, unexpected lawsuits, unfavorable international political or economic events, and most likely the typical lengthy CYA laundry list.

Conclusion

Based on multiple current industry standard market comps, Ambow Education shares are substantially undervalued. Even more compelling is that Ambow growth is strongly positioned for further dramatic gains as the company continues increasing growth in China and is now entering the large U.S. education market. Ambow has good access to capital since they were ushered into the U.S. financial markets through an IPO funded by Goldman Sachs, JP Morgan and others. Education market has deeper cycles and is typically more recession proof than most industries. Higher Ambow share prices are forecast as Ambow currently meets requirements and qualifies for purchase by institutional investors. Small retail investors and small institutions currently have an opportunity to accumulate Ambow shares at undervalued prices before larger institutional buyers discover and drive up price.

AMBO is rated “Strong Buy” with 12-month target of $22.00