TThe Chinese government is severely cracking down on education providers in China. Its new policy guidelines include registering institutions providing out-of-school tutoring (AST) services in China as non-profit organizations and amending the current registration-based system for operating AST online institutions. into a system requiring government approval.
Earlier this week, China Online Education Group (Center of excellence) announced an update regarding the Chinese government’s new policy guidelines for online and offline tutoring services. The provisions of this new policy, known as the Opinions on Further Reducing the Burden of Homework and After-School Tutoring for Compulsory Education Students (the Notice), are being carefully reviewed by the COE.
The WCC expects “the notice, related rules and regulations and compliance actions to be taken by the company to have a material adverse impact on its operating results and prospects.”
China Online Education Group is an online education platform in China, with the teaching of English as its main expertise.
About ten days ago, the company also lowered its forecast for the second quarter, saying it now expects revenue to be between RMB 575 million and RMB 580 million, compared to its range. earlier forecast ranged from RMB 597 million to RMB 603 million. (See COE stock chart on TipRanks)
The change in the regulatory environment and updated guidance prompted the Needham analyst Vincent yu to lower the target price from $ 36 to $ 32 (1015% up), but to maintain the buy rating on the stock.
The analyst attributed the lower forecast to two main factors. These include the decline in the number of courses taken by students per month and the decline in average income per course. The decline in average income per course is due to the increase in free courses offered during the second quarter, according to Yu.
The analyst added, “We also expect a significant decrease in gross billing as parents postpone their course purchases pending the introduction of new regulations. That said, we believe that the active growth of students is still on track, which is a testament to the strength of student demand and the quality of COE courses.
While the Chinese government had yet to release its detailed guidelines for online education when the Needham report was released, analyst Yu anticipated some guidelines with precision.
According to the new regulations, AST institutions will not be allowed to provide tutoring services in academic subjects on public holidays, school vacations and weekends. It is not clear whether this also includes ‘test oriented’ courses.
Yu commented, “Although COE courses only focus on improving students’ verbal communication skills, local regulators may or may not always classify COE courses as’ test oriented ‘. “
Another key Chinese government regulation prohibits foreign teachers located abroad from providing tutoring services in China. It is important to note here that COE’s online and mobile education platforms allow Chinese students to take English lessons with foreign teachers abroad.
This regulation could create further operational difficulties for the WCC and could have a significant impact on its activities.
As for the rest of the street, the consensus is that COE is a moderate buy, based on 1 buy and 1 hold. The China Online Education Group average price target of $ 32 implies an upside potential of 956.1% from current levels.
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