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Tomorrow Advancing Life 1Q18 Preview

|About: TAL Education Group (TAL)
Summary

The estimated 1Q18 revenue for TAL is $325.59M

Expansions in course capacity led to the lift of revenue

Governmental regulation may benefit K-12 market leaders

The application of mobile networks and new technologies will benefit TAL

Based on our proprietary data of Tomorrow Advancing Life (TAL) and calculation, we predict that TAL’s 1Q18 revenue will be $325.59M (see figure 1), which can beat the analysts' consensus of $307.36M. Part of our proprietary data comes from TAL’s official quarterly report and annual report. Our calculation is based on our deep analysis of TAL’s financial reports, course capacity, enrollment capacity and revenue capacity.

In the figure 1, the lower right graph showed about official TAL quarterly revenue until 17Q4 and estimated quarterly revenue after 17Q4, while the bottom left chart displayed our estimated daily revenue of TAL since late May 2017.

Figure 1

Graph created by the author. Information comes from SEC’s annual report.

Through our analysis of TAL’s performance in previous quarters, we believe the 1Q18 revenue will be favorable. The confident prediction of 1Q18 was primarily driven by TAL’s expansion regarding course capacity, enrollment capacity and revenue capacity.

Course capacity: By city, the course expansion occurred in cities other than Beijing, Shanghai, Guangzhou, and Shenzhen that means TAL have reached second-tier and third-tier cities as planned (See first chart in figure 2, the red line represents the cities other than Beijing, Shanghai, Guangzhou, and Shenzhen). By grade, the expansion occurred from 1st to 9th grades. Concerning subject, the development was mainly reflected in mathematics, which is one of the most popular subjects in Chinese K-12 after-school tutoring (See third chart in figure 2, the blue line is mathematics.). Increases in course capacity significantly led to the lift of revenue.

The following figure 2 shows about the trends of course capacity by city, grade, and subject.

Figure 2


Graph created by the author. Information comes from SEC’s annual report.

Revenue/Enrollment capacity: Based on our proprietary data of TAL and calculation, the ATPA (average tuition fees per attendee) increased regarding RMB but remained flat regarding USD due to the devaluation of RMB. The average size of class almost kept the same as usual, but the ratio of fully registered courses was slightly lower than before.

The charts in the upper column of figure 3 are revenue capacity by city, grade, and subject respectively. The images in the lower column of figure 3 are enrollment capacity by city, grade, and subject respectively.

Figure 3


Graph created by the author. Information comes from SEC’s annual report

Based on our proprietary data of TAL, both course number and ATPA had a definite increase in second quarter, so that 2Q18 of TAL may be another booming quarter.

“Dual-teacher” mode has become the core strategy to TAL recently. The “dual-teacher” mode means that two teachers are responsible for teaching. One is senior and seasoned, who is in charge of online education. The other one just like a teaching assistant that stays in the classroom with students and in charge of keeping the class in order, answering questions and helping students to understand course contents. By conducting the new “Dual-teacher” mode, TAL can offer their service to more students in lower tier cities besides the existing 19 ones. “Dual-teacher” mode improves the teaching quality than traditional online education because there is a teacher physically in the classroom to solve students’ questions timely and lead class interaction. We believe this new teaching model can contribute TAL a higher net profit margin, which can benefit margin as a total.

Governmental regulation may benefit K-12 market leaders. In the middle of May, Chengdu government forbade four learning centers of TAL from enrollment and teaching and asked another nine learning centers of TAL to stop enrolling students. This behavior indicates that government is paying more attention and putting more barriers to the K-12 education market. From this perspective of view, we believe that government is starting to reorganize the market through cleaning up those small and irregular companies and learning centers, which may be a positive thing to the market leaders, such as Tomorrow Advancing Life and New Oriental.

Along with the development of “dual-teacher” class mode, TAL starts to pay more eyes on online education. TAL recently declared that it has already applied O2O model (online to offline) and face recognition technologies in their programs. The application of O2O and face recognition makes TAL enjoy the benefits from the penetration of the mobile networks and new technologies.

TAL is utilizing big data in the analysis of K-12 market and its programs and customers. Understanding how to collect, integrate, calculate, and analyze data of K-12 market, course quality, and customers have become TAL's priority task. TAL is also attempting to become a scientific and technical corporation based on its massive students' group.

According to our thoroughly analyze about TAL, the revenue for 1Q18 can reach a new high and beat the analysts' consensus as well, so we believe that 1Q18 of TAL can be a booming quarter although the governmental regulation becomes more strict and complicated.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.