China’s Education Industry Faces Largest Supply Gap in the World; CFCG Shares rocket by 300% after Transformation

In 2016, HSBC (005) has released a global research report, where Chinese parents were found to be the most concerned when it comes to their children’s education. Parents in China are even willing to prioritize education for their kids over other expenses such as housing loans, insurance and investment. Given the expansion of China’s middle class, the country’s education sector has become a most promising industry. As Mr. Yan Haiting, the Executive Director and President of CFCG (1269) pointed out, the company aims to take advantage of the tremendous scope for growth and intends to fill the supply gap by investing in high quality educational institutions.

Since CFCG announced the transformation towards the integrated operation platform driven by "education + finance" in April 2016, it has been actively acquiring and investing in domestic education institutions, including the Hong Kong-listed Virscend Education (1565), the Kunming Professional College of Arts, the Jinan Shijiyinghua Experiment School and Xishan Schools. Mr Yan said, “Due to the rapid development of Chinese economy in the past 30 years, citizens have become increasingly affluent. As a result, many parents want better and higher quality education for their children. However, educational resources are scarce as contrast with the strong rigid demand. Hence, we are hoping to contribute to society through investing in the education sector, so that more children can benefit from education while we enhance our profitability.” According to Deloitte’s 2015 annual report, the market size of China’s education sector has reached RMB1.6 trillion and the figure is expected to have a compound annual growth rate of 24.6% reaching RMB3 trillion in 2020, outperforming almost all sectors in terms of growth potential.

Mr Yan also pointed out that, as compared to other countries, privately-operated education in China accounted for a far lower percentage of the industry. He believed that China’s education industry failed to meet public demand, as it was contrary to the common practice in the overseas market, where the best schools are run by private groups. He said, “Currently, no government in the world provides education to all of its citizens on its own. Our mission is simple, that is, to identify and invest in quality schools in China and facilitate their development, while bringing first class educational resources into China through cooperation with overseas education institutions.” To this end, CFCG has signed a memorandum of understanding with the Kingswood School in the United Kingdom for the joint operation of an international school in the region. It also is collaborating with the Møller Centre of Churchill College at Cambridge University and the University of West London in the United Kingdom as well as the AltSchool in the United States. The company is dedicated to boosting the quality of education in China by fostering exchanges between educational institutions in China and the rest of the world.

Pursuant to the restrictions of the “Private Education Promotion Law” of China, private education institutions may not be listed in the country, which limits the financing channels available to those enterprises. Mr. Yan thus believes Hong Kong can benefit from the demand for listing. “As a financial centre riding on the back of the Mainland market, Hong Kong is the best listing venue for private education institutions in China. We expect more and more well-established cultural and education enterprises to apply for listing in Hong Kong, and the education sector will blossom in the next five to ten years.” The share price of CFCG has been on the rise since the company announced transformation last year. As at the date of print, it closed at HK$15.36 and recorded a more than threefold year-on-year growth, outperforming other industry players in the same period. Therefore, it is not surprising that Mr Yan boldly trumpeted the success of the company’s transformation strategy and the market looks forward to its development in this blue ocean.