The Zhitong Finance app learned that China Galaxy Securities released a research report saying that the current regulatory policy framework for the education and training industry in China is quite complete, the boundaries and framework for the standardized development of the industry are clear, and the visibility of policy stability is already high. On this basis, the bank expects that future incremental supply to the industry will be mainly based on non-disciplinary training granted by leading institutions. However, from the demand side, considering that population growth in college entrance examinations in the next ten years+the education system will pay more attention to the comprehensive quality development of students is the main trend, the bank expects that education and training companies focusing on K9 new literacy plus personalized high school education services will fully benefit from the changes in the current supply and demand pattern.

Recommendation: University Education (000526.SZ). It is recommended to focus on Kode Education (300192.SZ), New Oriental-S (09901), and Good Future (TAL.US).

Incident: Influenced by the “Online Game Management Measures (Draft for Comments)” issued by the General Administration of Press and Publication on December 22, the market is concerned that the K12 education and training industry will once again introduce restrictive measures.

The comments of China Galaxy Securities are as follows:

The regulatory framework for China's K12 education and training industry is quite complete:

In order to effectively address the study burden of students in compulsory education, the heavy burden of family education expenses, and excessive capital inflow, since 2021, the Chinese government has formed a complete regulatory framework for the K12 extracurricular education and training industry, covering various dimensions such as qualification review, content filing and supervision, strict control of business hours, price guidance and capital supervision, and capital control. Among them, subject training at the compulsory education stage is the most stringent. First, it no longer approves new online/offline subject training institutions; second, subject training institutions at the compulsory education stage must become non-profit institutions and strictly implement government guidance prices; with regard to non-subject extracurricular training, the supervisory authorities have a positive attitude: according to the “Opinions on Regulating Non-subject Extracurricular Training for Primary and Secondary School Students” issued by 13 departments including the Ministry of Education in December 2022, the document clearly states that the “double reduction” policy does not prohibit non-subject training, but rather promotes “non-subject training as a school for non-subject education.” A useful addition”.

Judging from the effects of policy implementation, China's K12 education and training industry has returned to the path of standardized development:

Referring to data from the Ministry of Education, in 2022, the number of K9 offline subject training institutions in China has been reduced from 124,000 to 4,932, a reduction rate of 96%; the number of online subject training institutions has been reduced from 263 to 34, with a reduction rate of 87.1%. Listed companies have all completely dived/stopped K9 level subject training, and transformed and expanded new business models such as literacy training, vocational education, intelligent education equipment, and live e-commerce.

The goal of the next phase of regulatory work is to eliminate all types of variability in training:

According to the “Opinions on Regulating Non-Disciplinary Out-of-School Training for Primary and Secondary School Students” issued by the Ministry of Education in December 2022, future policy goals mainly include: 1) By June 2023, prevention mechanisms, detection mechanisms, and investigation and punishment mechanisms for invisible variation training problems in various disciplines will be basically established, the collaborative work pattern between departments and regions will be improved, and the trend of invisible mutation violation training will be better controlled; 2) By June 2024, the long-term mechanism for preventing and managing invisible variation training will be improved, and invisible variation training will be completely eliminated. Strongly ensure that the “double reduction” work has achieved remarkable results. From an implementation perspective, the formal implementation of the “Interim Measures on Administrative Penalties for Out-of-School Training” on October 15, 2023 provided the supervisory authorities with clear penalty rules. In particular, in response to the pain points and difficult issues of administrative penalties for out-of-school training strongly expressed at the grassroots level, it clarified illegal situations, stipulated legal responsibilities, standardized punishment procedures, and indicated a methodological path for standardized enforcement of out-of-school training.

Investment advice:

In summary, the bank believes that the current regulatory policy framework for the education and training industry in China is quite complete, that the boundaries and framework for the standardized development of the industry are clear, and the visibility of policy stability is already high. On this basis, the bank expects that future incremental supply to the industry will be mainly based on non-disciplinary training granted by leading institutions. However, from the demand side, considering that population growth in college entrance examinations in the next ten years plus the education system paying more attention to the comprehensive quality development of students is the main trend, the bank expects that education and training companies focusing on K9 new literacy plus personalized high school education services will fully benefit from the changes in the current supply and demand pattern. University education is recommended. It is recommended to focus on Cod Education, New Oriental-S, and a good future.

Risk warning: the risk that new business development is progressing less than expected; the risk that terminal demand will weaken due to the continued macroeconomic economy.