The Zhitong Finance App learned that Dongwu Securities released a research report saying that the “double reduction” kicked off in July 2021, the training activities of K-9 out-of-school training institutions were strictly restricted, and out-of-school subject training institutions were massively abolished. The business of the original education and training institutions has been greatly affected, and various companies are also actively transforming. Judging from the current business performance of major companies in the industry, the transformation has already begun to bear fruit, the business performance has clearly recovered, or it has shown an upward trend at an inflection point. Furthermore, the clean-up of the industry has essentially led to supply-side reforms. The scarcity of existing licensed outlets has increased, and the bank expects the operating profit margin of existing outlets to increase in the future.

Investment suggestions: K12 training requirements are rigid. Existing leading institutions are currently undergoing smooth business transformation, and the competitive landscape of the industry has improved markedly. We recommend New Oriental-S (09901), University Education (000526.SZ), and it is recommended to focus on the future (TAL.US).

The views of Soochow Securities are as follows:

Since the “double reduction”, the leading K9 subject training company has reached an inflection point in business transformation.

The “double reduction” began in July 2021. The training activities of K-9 out-of-school training institutions were strictly restricted, and training institutions outside of school subjects were abolished in large numbers. The business of the original education and training institutions has been greatly affected, and various companies are also actively transforming. Judging from the current business performance of major companies in the industry, the transformation has already begun to bear fruit, the business performance has clearly recovered, or it has shown an upward trend at an inflection point.

The “double reduction” mainly targets the compulsory education stage, and training at the high school level and above is less suppressed.

The “double reduction” mainly targets subject training at the compulsory education level. High school education and above is less suppressed, and education and training services at the high school level can still be carried out normally. This is also the reason why institutions such as New Oriental and university education that account for a relatively high school and above business (such as English, study abroad, etc.) are recovering more quickly.

Since the “double reduction”, supply-side reforms of education and training institutions have improved, the competitive pattern in the industry has improved, and the profit margins of existing institutions may increase.

Since the “double reduction,” the regulatory authorities have increased their school license requirements for education and training institutions. As a result, some education and training institutions have closed down because their outlets have not met the standards, and the industry has been cleared. This has essentially led to supply-side reforms and an increase in the scarcity of existing licensed outlets. The bank expects the operating profit margin of existing outlets to increase in the future.

Risk warning: policy supervision, network expansion falls short of expectations, enrollment falls short of expectations, etc.