China tutoring names Tal Education, New Oriental gain as after school tutoring ban less likely after newest comments (update)

Jun. 10, 2021 8:53 AM ETTAL Education Group (TAL), EDU, GOTUTAL, EDU, GOTUBy: Joshua Fineman, SA News Editor1 Comment

African-American teacher reading to school children
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  • Update 9:55am: Updates shares, adds JPMorgan analyst comment.
  • China tutoring names Tal Education (NYSE:TAL) and New Oriental (NYSE:EDU) rose in premarket trading after some new government comments about potential education reforms were made.
  • "We think that the worst-case scenario that the market feared (ie, AST ban on weekends and/or school holidays) is looking less likely," UBS analyst Felix Liu wrote in a note.
  • Tal Education rose 6.3%, while New Oriental climbed 11%. Gaotu Education, formerly GSX (NYSE:GOTU) gained 5%.
  • Liu's comments came after Xinhua New Agency published a new article that may give a "positive signal" for the regulatory direction. Liu see's "limited" downside to EDU/TAL from here.
  • The article says that "a blanked ban on AST without addressing the root of the problem is another form of lazy regulation ..." according to Liu.
  • Liu writes that Xinhua is from the official Chinese media overseen by the government and that its likely "consistent" with how senior government views the situation.
  • Separately, JPMorgan analyst DS Kim wrote that that the article was the first "not negative" news in a long while. The article does provide a "very balanced and reasonable" view of the tutoring sector and provides some "hope" that the government may not want to "kill the industry after all."
  • Kim does caution that the article is "merely the view of one media outlet" and wonders if other parts of the government share the same outlook.
  • The article comes as shares of the Chinese tutoring companies have plunged in recent weeks on fears that the government could institute a ban on after school tutoring on weekends and holidays. Chinese tutoring companies dropped after Chinese President Xi Jinping stressed the need for regulations for both online and offline after-school training institutions.
  • Liu had written last week that Tal Education and New Oriental downside could be significant if weekend/holiday tutoring were banned.
  • On Monday, Credit Suisse downgraded Tal Education and New Oriental citing increased regulatory risks in China.

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