GSX Techedu, Tal Education, New Oriental plunge for second day after China talks tutoring regulations

May 24, 2021 12:09 PM ETTAL Education Group (TAL), EDU, GOTU, COE, AIUEDU, AIU, TAL, COE, GOTUBy: Joshua Fineman, SA News Editor13 Comments
  • Tal Education (NYSE:TAL) dropped 16%, New Oriental Education (NYSE:EDU) declined 14% and GSX Techedu (NYSE:GOTU) fell 11%, dropping for a second day in a row after Chinese President Xi Jinping stressed the need for regulations for both online and offline after-school training institutions
  • Xi made the remarks at a meeting on Friday, according to a Xinhua report. China Online Education Group (NYSE:COE) fell 15% and OneSmart International (NYSE:ONE) dropped 6.3%.
  • In a bear case scenario, Chinese policy could completely ban new learning center expansion, advertisement and price hikes, Credit Suisse analyst Alex Xie wrote in a note earlier. Such a policy would likely have a limited impact on New Oriental's FY22 earnings estimate (maintains outperform on EDU, PT $14). Xie sees "relatively low risk" exposure to the new regulation in the K12 tutoring sector.
  • Separately, Citi analyst Mark Li wrote over the weekend that Xi's comments show "the government's resolution to regulate the AST sector."
  • The mention of control of AST companies "excessive capitalization" could also "trigger concerns" on listed AST players as well as companies looking to be listed, Li added. Citi prefers New Oriental (buy) over Tal Education (neutral)
  • Last month, Tal Education was cut to neutral at Nomura partly due to possible new tutoring regulations in China.

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