Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

New Oriental Education & Techn / Event-Driven

<p>On Friday 23 July, the 21st Century Business Herald and Bloomberg followed up one <a href="https://www.bloomberg.com/news/articles/2021-07-20/china-aims-to-lower-child-expenses-in-effort-to-boost-birth-rate" target="_blank" rel="noopener">stories</a> which had come out a couple of days earlier (which suggested much more regulation on after-school tutoring businesses), suggesting that China would possibly ban for-profit businesses which tutored China's K-12 students on school curriculum subjects. The same articles Friday suggested no listed businesses would be able to purchase or invest in such businesses, and foreign capital would not be allowed to invest in the businesses.</p>
<p>This was discussed pre-US open in <a href="https://www.smartkarma.com/insights/china-after-school-tutoring-online-education-stocks-crushed-investors-schooled" target="_blank" data-smartkarma-citation="insights:54878" rel="noopener">China After School Tutoring Online Education Stocks Crushed - Investors Schooled</a>. This seemed dramatic, and possibly dire. Stocks in the K-12 education sector in Hong Kong fell dramatically. Stocks listed in the US fell even more. A custom index of 16 names fell nearly 30%. An index of just the three major US-listed names - <a href="https://www.smartkarma.com/entities/tal-education-group" target="_blank" data-smartkarma-citation="entities:1124:1" rel="noopener">TAL Education (TAL US)</a>, <a href="https://www.smartkarma.com/entities/gaotu-techedu-inc" target="_blank" data-smartkarma-citation="entities:28069:1" rel="noopener">Gaotu Techedu (GOTU US)</a>, and <a href="https://www.smartkarma.com/entities/new-oriental-education-tech-grp-adr" target="_blank" data-smartkarma-citation="entities:531:1" rel="noopener">New Oriental Education (EDU US)</a> - was down 60% pre-open.</p>
<p>That wasn't enough as the basket closed 6% lower from there. </p>
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<p>It looks like even that may not have been enough.</p>
<h3>The NEW News</h3>
<p>On Saturday, the State Council followed up with a <a href="http://www.gov.cn/zhengce/2021-07/24/content_5627132.htm" target="_blank" rel="noopener">document</a><em>"Opinions on Further Reducing the Workload of Students and The Burden of Out-of-School Training in the Compulsory Education Stage"</em></p>
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<p>The Opinion is a wide-ranging polemic with instructions to local governments, school systems, educational authorities, etc to deal with the reduction of "double burden" on kids and parents of school system and after-school tutoring system on the same subjects as taught in the school system. There is lots of content suggesting significant detail on things like homework in regular school, who is to be given how much, how much they are not to do, what school administrators in the public school system should do to organise after-school and summer programs. </p>
<p>There are, of course, the sections about the after-school tutoring businesses - strictly enforcing regulations, ensuring proper qualifications, and severely punishing those institutions which fall short, especially those with a profit incentive. </p>
<p>If I were in that business, I would stop making a profit immediately. I would refund payments for currently in-progress classes so that the only payments related to teacher payments and bare minimum support costs are done. I would provide refunds to anyone who would take them so as to immediately cease the business. </p>
<p>Some businesses may be able to pivot. Some may be liquidation candidates. Some will simply be shut down to take the loss. </p>
<p>But this is a big change, and it has been out there. And it looks like when people did not see it quickly enough, it was decided Something Must Be Done. Now it is going to be done.</p>

On Friday 23 July, the 21st Century Business Herald and Bloomberg followed up one stories which had come out a couple of days earlier (which suggested much more regulation on after-school tutoring businesses), suggesting that China would possibly ban for-profit businesses which tutored China's K-12 students on school curriculum subjects. The same articles Friday suggested no listed businesses would be able to purchase or invest in such businesses, and foreign capital would not be allowed to invest in the businesses.
This was discussed pre-US open in China After School Tutoring Online Education Stocks Crushed - Investors Schooled. This seemed dramatic, and possibly dire. Stocks in the K-12 education sector in Hong Kong fell dramatically. Stocks listed in the US fell even more. A custom index of 16 names fell nearly 30%. An index of just the three major US-listed names - TAL Education (TAL US), Gaotu Techedu (GOTU US), and New Oriental Education (EDU US) - was down 60% pre-open.
That wasn't enough as the basket closed 6% lower from there. 






It looks like even that may not have been enough.
The NEW News
On Saturday, the State Council followed up with a document"Opinions on Further Reducing the Workload of Students and The Burden of Out-of-School Training in the Compulsory Education Stage"



The Opinion is a wide-ranging polemic with instructions to local governments, school systems, educational authorities, etc to deal with the reduction of "double burden" on kids and parents of school system and after-school tutoring system on the same subjects as taught in the school system. There is lots of content suggesting significant detail on things like homework in regular school, who is to be given how much, how much they are not to do, what school administrators in the public school system should do to organise after-school and summer programs. 
There are, of course, the sections about the after-school tutoring businesses - strictly enforcing regulations, ensuring proper qualifications, and severely punishing those institutions which fall short, especially those with a profit incentive. 
If I were in that business, I would stop making a profit immediately. I would refund payments for currently in-progress classes so that the only payments related to teacher payments and bare minimum support costs are done. I would provide refunds to anyone who would take them so as to immediately cease the business. 
Some businesses may be able to pivot. Some may be liquidation candidates. Some will simply be shut down to take the loss. 
But this is a big change, and it has been out there. And it looks like when people did not see it quickly enough, it was decided Something Must Be Done. Now it is going to be done.

China's New After-School Tutoring Policy Is Out - The End of the Line For Many?

Research on Tech Companies

Evelyn Zhang

Thematic (Sector/Industry)

<p>A series of recent Chinese policies promoting vocational schools instead of traditional secondary education, and efforts to eliminate after-class cramming makes me to recommend short K12 education related stocks and long vocational training related stocks.</p>

A series of recent Chinese policies promoting vocational schools instead of traditional secondary education, and efforts to eliminate after-class cramming makes me to recommend short K12 education related stocks and long vocational training related stocks.

A Twist of Fate – China’s Suppression of Secondary Education in Favor of Vocational Education

Overseas Chinese Equities, Aequitas Research

Ming Lu

Overseas Chinese Equities

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Bottom-Up

<ul>
<li>We believe it is not a good opportunity to accumulate equities of tutoring schools, especially those operating physical classrooms.</li>
<li>The juvenile Law went into effect as of June 1.</li>
<li>We believe all the coming restrictions aim to stimulate other consumption.</li>
</ul>


We believe it is not a good opportunity to accumulate equities of tutoring schools, especially those operating physical classrooms.
The juvenile Law went into effect as of June 1.
We believe all the coming restrictions aim to stimulate other consumption.


TAL Education (TAL): Last Summer for Physical Tutoring School

APAC IPOs & Placements

Zhen Zhou, Toh

New Oriental Education & Techn / Equity Bottom-Up

<p>China online education are trading about 60% lower on average since a year ago. This was largely due to expectations that there will be tightening of regulations on after-school tutoring sector including online education sectors. </p><p>In this note, we will discuss how we would position heading into the tightening of regulations.</p>

China online education are trading about 60% lower on average since a year ago. This was largely due to expectations that there will be tightening of regulations on after-school tutoring sector including online education sectors. In this note, we will discuss how we would position heading into the tightening of regulations.

China Online Education - Diversified Revenue Stream Wins Here - Balance in All Things

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Equity Capital Markets

Hutchmed China Ltd / Equity Capital Markets

<div>
<p><a href="https://www.smartkarma.com/entities/hutchmed-china-ltd" target="_blank" data-smartkarma-citation="entities:133:1" rel="noopener">Hutchmed China Ltd (13 HK)</a> has launched a $603 million secondary listing on HKEx by offering 104.0 million ordinary shares at a maximum offer price of HK$45.00 per share. Bookbuilding is scheduled to run until the pricing on 23 June. The net proceeds will be used to fund the late-stage clinical programs (<em>savolitinib, surufatinib, fruquintinib</em>, HMPL-689 and HMPL-523), to support further proof-of-concept studies and strengthen commercialisation capabilities.</p>
<p>HutchMed has primary listings on Nasdaq and on UK AIM. The HKEx secondary listing will be supported by five cornerstone investors which will subscribe for HK$2,535 million ($325 million) of the offer shares (54.17% of the offer shares at the maximum offer price). The cornerstone investors are <a href="https://www.smartkarma.com/entities/carlyle-group-inc" target="_blank" data-smartkarma-citation="entities:33402:1" rel="noopener">Carlyle Group Inc (CG US)</a>, CPP Investments, General Atlantic, <a href="https://www.smartkarma.com/entities/hbm-healthcare-investments-ag" target="_blank" data-smartkarma-citation="entities:22373:1" rel="noopener">HBM Healthcare Investments AG (HBMN SW)</a> and CICC Capital.</p>
<p>HutchMed is a China-based, globally focused, biopharma company, active in discovery, development, manufacturing, and commercialisation. The investment case centres on the<br>success of its oncology/immunology platform, which has several near-term clinical and regulatory catalysts from the novel highly selective small molecule (tyrosine kinase inhibitor) pipeline. Notably, in-house discovered drugs, <em>Elunate (fruquintinib)</em> and <em>Sulanda (surufatinib)</em>, together with a likely approval for <em>savolitinib</em>, are transforming China prospects. <em>Elunate</em> is performing well in China, with NRDL inclusion boosting volumes. The first global launch is likely to be <em>surufatinib </em>with a US launch targeted for late 2021 or early 2022.</p>
</div><div><div class="content-highlight"><p>In this note, we will look at HutchMed’s potential HK-ADS premium/(discount). As per the norm, HutchMed will price its H-shares at a discount to its ADSs/UK shares to entice investors to participate in the secondary listing. HutchMed pricing its H-shares at a discount of 2-3% to its ADSs will be reasonable, in our view.</p></div></div>


Hutchmed China Ltd (13 HK) has launched a $603 million secondary listing on HKEx by offering 104.0 million ordinary shares at a maximum offer price of HK$45.00 per share. Bookbuilding is scheduled to run until the pricing on 23 June. The net proceeds will be used to fund the late-stage clinical programs (savolitinib, surufatinib, fruquintinib, HMPL-689 and HMPL-523), to support further proof-of-concept studies and strengthen commercialisation capabilities.
HutchMed has primary listings on Nasdaq and on UK AIM. The HKEx secondary listing will be supported by five cornerstone investors which will subscribe for HK$2,535 million ($325 million) of the offer shares (54.17% of the offer shares at the maximum offer price). The cornerstone investors are Carlyle Group Inc (CG US), CPP Investments, General Atlantic, HBM Healthcare Investments AG (HBMN SW) and CICC Capital.
HutchMed is a China-based, globally focused, biopharma company, active in discovery, development, manufacturing, and commercialisation. The investment case centres on the success of its oncology/immunology platform, which has several near-term clinical and regulatory catalysts from the novel highly selective small molecule (tyrosine kinase inhibitor) pipeline. Notably, in-house discovered drugs, Elunate (fruquintinib) and Sulanda (surufatinib), together with a likely approval for savolitinib, are transforming China prospects. Elunate is performing well in China, with NRDL inclusion boosting volumes. The first global launch is likely to be surufatinib with a US launch targeted for late 2021 or early 2022.
In this note, we will look at HutchMed’s potential HK-ADS premium/(discount). As per the norm, HutchMed will price its H-shares at a discount to its ADSs/UK shares to entice investors to participate in the secondary listing. HutchMed pricing its H-shares at a discount of 2-3% to its ADSs will be reasonable, in our view.

HutchMed Secondary Listing: HK-ADS Premium/​​​(Discount) Views

China

New Oriental Education & Technology Group, Inc. offers educational services. The Company offers foreign language training, test preparation courses for admissions and assessment tests in the United States, the PRC and Commonwealth countries, primary and secondary school education, and other services. New Oriental Education & Technology Group also operates software development.

Price Gauge
52-week Range	0.00 - 0.00
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New Oriental Education & Techn (EDU US)

China's New After-School Tutoring Policy Is Out - The End of the Line For Many?

The State Council has now put out its policy for after-school education and private tutoring of school curriculum. But it is bigger than that. This...

Travis Lundy

A Twist of Fate – China’s Suppression of Secondary Education in Favor of Vocational Education

Change is afoot in one of China's main social mobility mechanism, the education system. The country is promoting vocational education in an effort...

Evelyn Zhang

TAL Education (TAL): Last Summer for Physical Tutoring School

We believe it is not a good opportunity to accumulate equities of tutoring schools, especially those operating classrooms. We believe all the...

Ming Lu

China Online Education - Diversified Revenue Stream Wins Here - Balance in All Things

China online education are trading about 60% lower on average since a year ago. This was largely due to expectations that there will be tightening...

Zhen Zhou, Toh

HutchMed Secondary Listing: HK-ADS Premium/(Discount) Views

HutchMed has launched a $603 million secondary listing on HKEx. In this note, we will look at HutchMed’s potential HK-ADS premium/(discount).

Arun George

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

China's New After-School Tutoring Policy Is Out - The End of the Line For Many?

The State Council has now put out its policy for after-school education and private tutoring of school curriculum. But it is bigger than that. This...

Travis Lundy

A Twist of Fate – China’s Suppression of Secondary Education in Favor of Vocational Education

Change is afoot in one of China's main social mobility mechanism, the education system. The country is promoting vocational education in an effort...

Evelyn Zhang

TAL Education (TAL): Last Summer for Physical Tutoring School

We believe it is not a good opportunity to accumulate equities of tutoring schools, especially those operating classrooms. We believe all the...

Ming Lu

China Online Education - Diversified Revenue Stream Wins Here - Balance in All Things

China online education are trading about 60% lower on average since a year ago. This was largely due to expectations that there will be tightening...

Zhen Zhou, Toh

HutchMed Secondary Listing: HK-ADS Premium/​​​(Discount) Views

HutchMed has launched a $603 million secondary listing on HKEx. In this note, we will look at HutchMed’s potential HK-ADS premium/(discount).

Arun George

HutchMed Secondary Listing: HK-ADS Premium/(Discount) Views