Equity Analyst, LightStream Research

Farha Sabri

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Capital Markets

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<li>
<a href="https://www.smartkarma.com/entities/gsx-techedu" target="_blank" data-smartkarma-citation="entities:28069:1">GSX Techedu (GSX US)</a> is a Chinese online education company which has filed for an IPO in the US. The expected IPO price range is $9.5-$11.5 per ADS, which implies an enterprise value of $2.4bn at the midpoint.</li>
<li>GSX’s main focus is on providing online education for K-12 after-school classes, which accounts for around 75% of the company’s revenue. In addition to this, GSX also offers foreign language and professional courses.</li>
<li>The industry in which GSX operates has significant growth potential. iResearch (a market research firm which looks into internet-related industries in China) expects the online education market to continue its growth at a CAGR of 21.2% with the online K-12 segment to grow at a CAGR of 35.7% over 2018-22. The online K-12 education segment’s market share is expected to expand to 27.6% from 17.5% over the same period.</li>
<li>While this gives plenty of favourable future prospects for the company, we believe that the fragmented nature of the industry would curtail GSX's market share growth. Presently, even the major players in the online K-12 after-school tutoring market has a market share of less than 1%.</li>
<li>According to our estimates, GSX is trading at a premium to its peers. At the mid-point of the IPO price range, GSX’s FY3 EV/Revenue multiple comes to 8.9x, per our base case (3-year revenue CAGR of 66%). This is at a premium to both GSX’s online (1.2x) and offline (2.2x) Chinese tutoring service peers. Given the highly competitive nature of the industry and the lack of product differentiation by GSX in comparison to peers, we believe that the company’s IPO price is too high.</li>
</ul>



GSX Techedu (GSX US) is a Chinese online education company which has filed for an IPO in the US. The expected IPO price range is $9.5-$11.5 per ADS, which implies an enterprise value of $2.4bn at the midpoint.
GSX’s main focus is on providing online education for K-12 after-school classes, which accounts for around 75% of the company’s revenue. In addition to this, GSX also offers foreign language and professional courses.
The industry in which GSX operates has significant growth potential. iResearch (a market research firm which looks into internet-related industries in China) expects the online education market to continue its growth at a CAGR of 21.2% with the online K-12 segment to grow at a CAGR of 35.7% over 2018-22. The online K-12 education segment’s market share is expected to expand to 27.6% from 17.5% over the same period.
While this gives plenty of favourable future prospects for the company, we believe that the fragmented nature of the industry would curtail GSX's market share growth. Presently, even the major players in the online K-12 after-school tutoring market has a market share of less than 1%.
According to our estimates, GSX is trading at a premium to its peers. At the mid-point of the IPO price range, GSX’s FY3 EV/Revenue multiple comes to 8.9x, per our base case (3-year revenue CAGR of 66%). This is at a premium to both GSX’s online (1.2x) and offline (2.2x) Chinese tutoring service peers. Given the highly competitive nature of the industry and the lack of product differentiation by GSX in comparison to peers, we believe that the company’s IPO price is too high.


China Distance Education Holdings Ltd (ADR) (DL US)

China Distance Education Holdings Ltd (ADR)

GSX TechEdu IPO: A Bit Too Speculative for Our Liking

Gaotu Techedu

GSX TechEdu IPO: A Bit Too Speculative for Our Liking