China Education Sector: No Change to View Despite Slow For-Profit Classification; Shares Attractive

Share prices of the four higher education names under our coverage, China Education Group, or CEG; China New Higher Education, or CNHE; China YuHua Education, or YuHua; and Edvantage, have fallen by 30%-38% year-to-date. We think the uncertainty in for-profit classification has pressured their share price performance. It's been a year since some schools received preliminary approval, but so far none has been officially classified as a for-profit school. Nonetheless, an increasing number of provinces have asked local higher education schools to make for-profit/non-profit selections over the past few months. Our base case remains that for-profit classification will proceed. We think it is very unlikely that the government will make all higher education schools non-profit as this will create heavy financial burdens for the government.