Morgan Stanley published a research report that the regulation of academic guidance and examination preparation career guidance in senior high schools in the mainland still exists this year, and formal vocational education is expected to be the main area of support, and under the new regulatory framework, various educational institutions will continue to reorganize their business, among which they are optimistic about China Oriental Education (00667.HK), Science and Technology Education (01890.HK), Yuhua Education (06169.HK) and Zhonghui Group (00382.HK).
According to the report, mainland regulation will continue to focus on making junior secondary education fairer, reducing the burden on students' study and family expenses, improving the quality of higher education, improving the scale and quality of vocational education, and providing regulatory and financial support. At the same time, the mainland authorities are expected to introduce more support measures, such as the vocational college entrance examination and score system, to improve the level of skills training, but it is expected that the regulation of vocational examination preparation training will continue to be tightened this year, making the competition more fierce.
Morgan Stanley estimates that the profit outlook of educational institutions in fiscal year 2022 remains stable, with profit growth of about 14% to 30%. There was less M & An activity in the first half of the year, and the market is more worried about for-profit registration, but as more supportive measures for formal vocational education are implemented, the second half of the year may usher in industry revaluation opportunities to keep profit forecasts unchanged, but discount valuations by 10% to reflect the uncertainty of the for-profit registration system.
Morgan Stanley downgraded Hope Education (01765.HK) and TAL Education Group (TAL.US) from "keep pace with the market" to "underweight", with target prices of HK $1.40 and US $3.50 respectively.