New Oriental Education (EDU) stock is up 8% following a WeChat post from Chinese state-run press agency Xinhua News, which indicated that the rumored ban on weekend and holiday after-school tutoring may be less likely than previously speculated.
In addition to criticizing the notion of an outright ban and acknowledging concerns facing parents, the WeChat post included the following statement:
“A well-developed, healthy, and standardized off-campus education and training market is bound to be a powerful supplement to school education, and it can promote schools to expand education supply and improve education quality through healthy competition”
To us, this language suggests that contrary to recent rumors, Chinese regulatory authorities are not necessarily looking to end the after-school tutoring industry, and instead view it as an important supplement to the public school education system.
Additionally, the post also included language that suggested that the government could be in favor of additional industry consolidation, which should benefit leading players like EDU and TAL, in line with our initial thesis.
The WeChat post even went so far as to indicate that regulators are conscious of the negative impact recent rumors have had on education sector investors and are willing to take steps to address that impact. While this is not something we were anticipating, we see this uncharacteristically accommodative messaging to be a very promising signpost:
“We must not infinitely magnify or overly implicate certain aspects of the problem, so that companies and investors lose confidence in the entire industry and the market.”
Stepping back, we view this news as meaningfully positive for EDU, particularly since the reports should be ascribed more weight than unsubstantiated speculation from non-state-backed news outlets. That said, there are still many moving pieces at play here that we are actively assessing and monitoring. We’ll share more details shortly.