中国教育行业：什 么样的商业模式最适合抓住潜在的1000亿美元在线直播市场

1、Global Research15 August 2019EquitiesChinaConsumer ServicesEdwin Chen,CFAAnalyst EquitiesChinaConsumer ServicesEdwin Chen,CFAAnalyst HYPERLINK mailto:edwin.chen +86-105-8328186FelixLiu Analyst HYPERLINK mailto:felix-a.liu +86-213-8668850What business model is best positioned to capturethe potential

2、US$100bn online AST market?Online AST: US$100bn 2025E market potential; TAL/Koolearn well-positionedIn our HYPERLINK /shared/d2foEZYQ1hH 2018 deep-dive note we highlighted substantial upside potential in online afterschool tutoring (AST), underpinned by a combination of rising consumer acceptance an

3、d improving technology/products. So far, the sector has met our expectations.WeestimateonlineASTcouldreachRmb684bn(cUS$100bn)by2025, upfromRmb46bnin2018(seeour HYPERLINK /shared/d2BDZEQtUjJ0n4 interactiveindustrymodel),withparticularlystrong momentum in lower-tier cities. We view online big classes

4、(eg, HYPERLINK /shared/d2m5U5UCgJLIHB8 TAL HYPERLINK /shared/d2Ok1QJeS85 /Koolearn) as the business model with most potential to capture the substantial opportunity (see our HYPERLINK /shared/d2aM1d58fR2xfoM interactiveuniteconomicsmodel).WeliftourpricetargetsonTALEducation(TAL)and HYPERLINK /shared

5、/d2SpiSLzwgRJm New Oriental (EDU) by 1% and 16%, respectively, as we change our valuation methodology to SOTP, from DCF, to better highlight the value of their online operations.WeinitiatecoverageonKoolearnwithaBuy.TALremainsourtoppick.Growing lower-tier cities drive our more bullish sector revenue

6、estimatesFast-improvingacceptancetowardsonlineinlower-tiercitiesisakeydriverofourmore bullish sector revenue estimates. Tier 3-and-below cities represent 85% or 162m of ChinastotalK12(kindergartentoyear12)studentpopulation,butareunderservedby boththepublicandprivateeducationsystemsalargeincrementala

7、ddressablemarket for the leading AST service providers to penetrate online. We estimate online AST in lower-tiercitiescouldreachRmb400bnby2025(c23xofTALsFY19revenue),asAST penetration there catches up with higher-tier cities and the increasingly competitive online market gains share from offline.Com

8、petitive landscape highly dynamic; big classes best positioned to succeed The online AST landscape is highly dynamic, and a variety of business models are reportinginitialsuccesses.Inourinteractivemodelwemodelbig-class,small-classand 1-on-1 formats. In our base case, we think big classes are best po

9、sitioned with better economics,scalabilityandpotentialupsidefromAI.Oncestabilised,wethinkonlinebig classescoulddeliverc20%OPMwhichwouldbemarginaccretiveforTAL/EDU.Stock picks: Buy ratings on TAL, EDU (SOTP) and Koolearn (initiation)WiththeonlineASTsectorintheinvestmentstageandlossmaking,itisstilladr

10、agon TAL/EDUsearnings,thusdistortingcompaniesPEvaluations.Wethinkthesubstantial upsidepotentialinonlineASTandTAL/EDUsstrongpositioningarenotfullypricedin. WereiterateourBuyratingsonTAL/EDUandnowaddKoolearntoourBuylist.Figure 1: Afterschool tutoring companies under coverage valuation comparisonCompan

11、yUBSPrice targetPrice targetPriceMkt cap30-d ADV PSSales CAGRPSG PEEPS CAGRPEGnameTickerRatingNewOld(LC)(USD m)(USD m)FY1EFY2EFY3E(FY0-FY3E)FY1EFY2EFY3E(FY0-FY3E)TALTAL.NBuy48.8548.3131.7718,80025.65.2x3.6x2.5x43.2%0.08x43.7x26.1x16.4x46.5%0.56xNew OrientalEDU.NBuy130.00111.61101.6716,09623.44.0 x3.

12、2x2.5x27.0%0.12x28.8x20.2x14.9x38.6%0.52xKoolearn1797.HKBuy14.40NA10.221,2201.66.0 x3.9x2.6x53.2%0.07xNA137.1x34.6xNANAOneSmartONE.NBuy13.0713.077.341,1960.21.5x1.2x0.9x33.0%0.03x13.7x9.7x7.1x35.7%0.27xRISEREDU.ONeutral11.0011.008.134620.31.7x1.4x1.2x20.4%0.07x12.8x9.7x7.3x31.9%0.30 xNote: Above dat

13、a priced as of 14 August 2019. Source: Thomson Reuters, UBS-S estimates HYPERLINK / This report has been prepared by UBS Securities Co. Limited.ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ONPAGE25. UBSdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshould

14、be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider thisChina Education SectorUBS-SResearchMAPa guide to our thinking and whats where inthisreport HYPERLINK l _bookmark2 OURTHESISINPICTURESMOSTFAVOUREDLEAST FAVOUREDTAL, N

15、ewOriental,KoolearnRISEEducationPIVOTALQUESTIONSQ: How will online education transform afterschool tutoring (AST) by2025?We think the rising adoption of online AST will be the big trend in education over the next few years,reachingRmb684bn(cUS$100bn)by2025,upfromRmb46bnin2018.Lower-tiercites,home to

16、 the majority of K12 students in China, will be the key growth driver for onlineAST. HYPERLINK l _bookmark3 moreQ: What is the best business model to take advantage of the online AST opportunity?OfthemajoronlineASTbusinessmodels(ie,big-classes,small-classesand1-on-1),overallwethink thebig-classforma

17、tislikelythemoreoptimalbusinessmodeltocapturethevastonlineASTmarket, due to its better economics, scalability, and less regulationrisks. HYPERLINK l _bookmark10 moreQ: Are recent regulatory actions materially affecting AST?No.WethinkdemandforASTshouldremainlargelyintact.Onthesupplyside,wethinksmallA

18、ST providerscouldfacemoreregulatorypressure,whiletheleadingcompaniesarebetterresourcedto comply with the higher standards and thus less likely to face disruption. We flag market consolidation potential for the frontrunners. HYPERLINK /shared/d20vWpinQQo UBS Evidence Lab inside: regulation has not st

19、opped parents spending more, including online 01/28/2019UBSVIEWWe see substantial upside in online AST, underpinned by a combination of rising consumer acceptance and improving technology/products. We estimate online AST could reach Rmb684bn (cUS$100bn) by 2025, up from Rmb46bn in 2018, with particu

20、larly strong momentum in lower-tier citiesahugeincrementaladdressablemarketfortheleadingASTproviders.Weviewtheonlinebig- classformatasthemostpromisingbusinessmodeltocapturethesubstantialopportunity.TALand EDUs Koolearn are well-positioned in our view.EVIDENCETier 3-and-below cities represent 85% or

21、162m of Chinas total K12 student population, but underservedbyboththepublicandprivateeducationsystemsaccordingtoWindandUBSEvidence Labdata.UBSEvidenceLabsurveyrevealsquicklyimprovingsentimenttowardsonlineASTinlower tier cities, suggesting strong incremental growth opportunitiesthere.WHATSPRICEDIN?Ko

22、olearnandTALsonlineoperationsaretradingatPSG(P/SratiodividedbysalesgrowthCAGR) discounts relative to offline education and internet peers. We think the revenue and profitability upsideinonlineASTissubstantialandTAL/Koolearnsstrongrelativepositionsarenotpricedin. HYPERLINK l _bookmark17 moreChina K12

23、 afterschool tutoring sector revenue estimatesOnlineOffline684495351 242 16276113 3 144072047730461,038 1,098 1,14781189896918142256262OnlineOffline684495351 242 16276113 3 144072047730461,038 1,098 1,147811898969181422562629298123485556287311,80002010 2011 2012 2013 2014 2015 2016 2017 2018E 2019E

24、2020E 2021E 2022E 2023E 2024E 2025ESource: Wind, UBS-S estimatesChinaEducationSectorUBS-SResearchOURTHESISINPICTURES HYPERLINK l _bookmark1 return China AST sector revenue estimatesOnlineOffline47%2018-25ECAGR684461,147628OnlineOffline47%2018-25ECAGR684461,14762816001200800WeexpectonlineASTtogrowtoa

25、cUS$100bnmarket by 2025 an incremental total addressable market (TAM)c40 xTALsFY19revenue40002018E2025E40%35%30%25%20%15%10%5%0% of parents prefer online to offline2017201836%27%21%14%15%13%Tier1Tier2Tier3/42017201836%27%21%14%15%13%We think rapidly improving sentiment towards online AST (shown in U

26、BS Evidence Labs Afterschool Education survey)Tier 1 cities:5.7m students; 3.0% of totalMajor Tier 2 cities: 22.0m students; 11.6% oftotalTier 3 and below: 161.6m students; 85.4% of totalTier 1 cities:5.7m students; 3.0% of totalMajor Tier 2 cities: 22.0m students; 11.6% oftotalTier 3 and below: 161

27、.6m students; 85.4% of totalcould open up the huge incremental TAM in lower-tier cities/regions, in which the majority of Chinas K12 students resideTier 1 cities:1,612LCs;Tier 1 cities:1,612LCs;32.3%oftotalMajor Tier 2 cities: 2,033LCs;40.7%oftotalTier 3 and below: 1,350LCs;27.0%oftotalbut are under

28、served by both the leading AST brands andK12 student/teacher ratio17.116.812.6the public education systems12.6Top10provinceinK12 studentpopulationNationalaverageBeijing/ShanghaiNon-GAAPOPMofTALonlineandKoolearn25% TAL Online21%20%15%10%5%0%-6%-5%Koolearn0%-5%1%13%7%10%7%18%13%16%We think the present

29、-day loss-making online AST businesses have the potential to deliver margins even higher than offline, with better leverage on selling, marketing, general & administrative (G&A) costs and potential efficiency improvements from technology-10%-10%-9%-15%FY19EFY20EFY21EFY22EFY23EFY24EFY25E25%Unit OPM c

30、omparison at a stable stage base case2.99%Potentialefficiencygainwith2.99%PotentialefficiencygainwithAITAL peak OPM in the past 5 years: 19.6%20.5%19.6%7.1%15%10%supported by analysis in our unit economics model5%0%Big-classSmall-class1-on-10.16x0.14xFY21E price/sales growth (PSG)0.12x0.10 x0.08x0.0

31、6x0.04x0.02xWe think the revenue and profitability upside of TAL online and Koolearn are not priced in0.00 x0.15x0.14x0.12x0.08x0.07x0.05x0.03xEducation - offline average0.15x0.14x0.12x0.08x0.07x0.05x0.03xInternet peers averageNew OrientalTALKoolearn Education - TAL online onlineaverageSources for e

32、xhibits above: UBS Evidence Lab, Wind, Thomson Reuters, company data, UBS-S estimatesHistorical timeline of online AST developmentTimelineDevelopmentc2009 to 2013 Slow start with pre- recorded video coursesOnline AST started out in the form of pre-recorded video courses, to our knowledge. TAL and ED

33、Us Koolearn launched early attempts at the format.The results were mixed due to weak student-teacher interaction, which resulted in lowclasscompletionratesandlowretention(measuredasapercentageofcurrent students that enrol in the nextsession).During this period, TALs online revenue contribution remai

34、ned in the low single digits, and offline growth was faster than online, in general.2013 to 2017 Live streaming emerged as the go- to formatOnline 1-on-1 delivered strong momentumWithbetterinternetinfrastructure,theASTproviderswereabletoadoptthelive streamingformat.Duringthisperiod,therewereindividu

35、alteachersleveraging third-party live streaming websites, such as YY as well as institutionalised products from TAL and Koolearn.The online 1-on-1 format, particularly in English tutoring, grew quickly during thisstage.NotableprovidersincludedVIPKID,DaDa,51Talk,VIPJr,etc.Wethink the head-start in 1-

36、on-1 can be attributed to the more intimate study environment of the format.Online big/small classes recorded relatively slower growth than the 1-on-1 format during this stage, according to UBS Evidence Lab app usage data. We think it could be due to relatively less mature products and weaker consum

37、er acceptance.2018 to H1 2019 The rise of the online big-class format2018 saw the rise of the online big-class format led by TAL, Zuoyebang, Yuanfudao, HYPERLINK /shared/d2iZcXdTddYC3 accordingtoUBSEvidenceLabappusagedata.Wethinkthiscan beattributedto:1)improvingtechnologyandcoursedesign;2)bettercon

38、sumer education/acceptance due to leading providers aggressive marketing; and3) wider adoption of teaching assistants which improves service quality.Throughout the relatively short history of online AST, most businesses have tended to be loss making likely due to: 1) the high upfront, fixed costs in

39、 runninganinternetbusiness;2)aggressiveinvestmentsinmarketingandR&D; and 3) weaker operating metrics, such as low retentionrates.Source: UBS Evidence Lab, UBS-SSIGNPOSTSThe potential path to our 2025 base-case scenario and the datapoints to trackTimelineWhat we expectH219E Continued growth of online

40、 bigclassesWeexpecttheonlinebig-classformattocontinueitsstronggrowth,asthescalable model penetrates into more lower-tier cities.We expect both TALs Xueersi Online and Koolearns K12 business to double their revenue YoY in FY20 (close to CY19).2020 to 2021E Continued strong growthBetter technology and

41、 operating leverage could improve profitabilityWe expect continued strong growth in the online big-class format. We expect TALsXueersiOnlineandKoolearnsK12toclosetodoubletheirrevenueYoYagain in FY21, as they continue to explore the substantial addressable market of online AST.We expect new technolog

42、ies like artificial intelligence (AI) to be more widely applied in online AST, helping improve user experience and efficiency of teaching staff.Withtheimprovedefficiencyandbetteroperatingleverageonselling,marketing andR&Dexpenses,weexpectTALsonlineandKoolearntobreakevenatFY21.2022 to 2025E Online AS

43、T could start to deliver high-speed profitable growth, powered by technology and greater consumer acceptanceWebelieveonlineeducationcouldbematureenoughtodeliverteachingquality on a par with, or even superior to, offline courses, thanks to better technology andcoursedesign.Onlineeducationmaybeequally

44、well-receivedasofflineas suggestedinUBSEvidenceLabsChinaAfterschoolEducationsurveys.Meanwhile, thanks to efficiency gains with technology and stronger pricing power from better teaching quality, we expect online AST to deliver margins comparable or even superior to offline.OurFY25EonlineK12revenuesf

45、orTALandKoolearnarec20/35xthestarting point in FY19, with over a 16% OPM.Source: Company data, UBS-S estimatesPotential deviations from our base-case scenarioParents/students acceptance HighOnline dominance in selective segmentsHigh online adoption across segmentsBase caseConsumersareembracingeducat

46、ion,buttechnologyfailstomakefeasibleeveryeducationscenario.expecttoprevailselective segments with relatively execution hurdle (especially technology-wise) andprovencustomeracceptance,i.e. ELT, 1-on-1tutoring.Therecentboombig-classendsuptobeshort-lived.scenarios, remains more of welcoming supplements

47、 tooffline classes.Beneficiaries : offline players with good supplements, players selective segments; laggards : offline players with direct competition.Technologyadvancementsenableeducationtodeliverpar,or evensuperior,teachingquality,comparedwithofflinecoursesandare widelyaccepted.businessmodelsare

48、proventobeviable.Competition comes down to teaching quality and reputation, but likely with greater market concentration. Beneficiaries : first-movers in online education with strong teaching quality and reputation; laggards : offline players slow to the online transformation.BeneficiariesLaggardsBe

49、neficiariesLaggardsOffline players withOnline players withOffline players withFirst-movers education with strongOffline players slow ingood online supplements good market positioning direct online competitionteaching quality and reputation:online transformation:-TAL-VIPKID-RISE-TAL-Zuoyebang- RISE-E

50、DU- Zhangmen 1on1-OneSmart-EDU- YuanfudaoVIPKIDZhangmen 1 on1Online education technologyadvancementLowOnline education technology advancementHighStatus quoA failedventureSimilar to current state of the market, parents/students acceptance for remains low, with no breakthrough technology. The momentum

51、 settles,afterinitialsuccessfromaggressivemarketing.Leadingoffline players like quickly cut back educationinvestment.Beneficiaries : current leaders and front-runners in offline tutoring;laggards : pure online players.Technological improvements fail to win parents/students acceptance, who still pred

52、ominantly prefers offline courses. Current momentum in online settles, after initial success from aggressive marketing. Beneficiaries : offline players without significant commitment to online; neutral: offline players invest heavily online, but their strong offline franchise helps absorb the online

53、 losses; laggards : pure online players.BeneficiariesLaggardsBeneficiariesNeutralLaggardsCurrent leaders in offline Other front-runners inPureplayers:Pureofflinesizable Pure online players:tutoring:offline:VIPKID-RISEinvestment:VIPKID-TAL-RISE- Yuanfudao-OneSmart-TAL- Yuanfudao-EDU-OneSmart- Zhangme

54、n 1on1-EDU- Zhangmen 1 on 1Parents/students acceptance LowSource: UBS-S estimatesChina Education SectorUBS-S ResearchPIVOTAL QUESTIONS HYPERLINK l _bookmark0 return Q: How will online education transform afterschool tutoring (AST) by 2025?UBS-S VIEWWe think the rising adoption of online AST will be

55、the big trend in education overthenextfewyears,particularlyinlower-tiercitieswhereonlineeducation canhelpbringhigh-qualityeducationservicestotheseareasunderservedby current public and private educationsystems.WethinkonlineASTcouldreachRmb684bn(cUS$100bn)by2025E,upfrom Rmb46bn in 2018 (see our HYPERL

56、INK /shared/d2BDZEQtUjJ0n4 interactive industry model for details). Withinthis, Rmb400bn could be from lower-tier cities.Wethinkthevastopportunitiesinlower-tiercitiesforeducationcouldprovide a large incremental TAM for leading service providers like TAL and EDU to capture,withnomaterialcannibalisati

57、onoftheircoreofflinebusinessesinTier 1 and Tier 2 cities.EVIDENCEInUBSEvidenceLabsDecember2018afterschooltutoringsurvey, 27% of parents preferred online over offline, up from 14% in2017.Lower-tiercitiesrecordedbiggergainsinonlineacceptance.27%of parents in Tier 2 cities preferred online AST in Decem

58、ber 2018, up from 15% a year ago. In the meantime, this ratio increased from 13% to 36% in Tier 3/4 cities.In the 2018 survey, most parents said that online classes are now performing on a par, or better than, offline in key AST decision- making drivers.According to iResearch, Beijing and Shanghai c

59、ombined only contribute 6.5% of Xueersi Onlines monthly active users (MAU), while the two cities are home to 23% of TALs Xueersi offline capacity.Thiscontrastsuggestsnomaterialcannibalisationbetween TALs online and offlineoperations.Faster online transition could unlock huge incremental TAM for lead

60、ing service providers, particularly inlower-tier citiesWerollforwardourindustryforecastsbyoneyearandreiterateourbullishviewof the online AST sector, particularly in lower-tier cities, backed by the encouraging consumer acceptance in these cities HYPERLINK l _bookmark6 (Figure9).Lower-tier cities are