Wisdom Education:A Guangdong private K-12school operator

In 2015 and 2016 school years, 21.4% and 23.2% of Wisdom’s high school graduates were admitted to First Class Universities in China (classified by Education Examinations Authority of Guangdong Province), versus the provincial admission rate of 8.6% and 10.0%. Moreover, 10 graduates of Dongguan Guangming School (the first school of Wisdom) were admitted to Peking University and Tsinghua University in 2016 school year.

We believe the strong academic performance was partially attributed to Wisdom’s boarding schools strategy, which help to ensure student’s effort, and Wisdom could provide additional review courses when necessary. Besides, Wisdom offers a wide range of school-based elective courses. In each of the last three school years, there were Wisdom’s graduates admitted to first-tier specialized PRC universities, including Beijing Sport University and the Central Academy of Fine Art, in recognition of their sports or art specialties.

While Dongguan Guangming School has reached the full capacity, we are positive toward the Company’s growth potential given its proven track record in expansion. For instance, Dongguan Guangzheng Preparatory School was acquired by Wisdom in August 2013. Under Wisdom’s management, student enrolment increased from 4,151 in 1 Sep 2013 to 9,094 in 1 Sep 2016. Wisdom now operates 5 school campuses, and the Company plan to add 2 schools per annual (one self-develop + one M&A) in next few years with a primary focus in Guangdong. We expect ~20% growth in student enrolment for 2017 school year thanks to the ramp up in capacity and new schools.

After PRC government introduced the “Decision on Amending the Law for Promoting Private Education of the PRC” (《關於修改<中華人民共和國民辦教育促進法>的決定》) in Nov 16, the market turns pessimistic toward private K-12 school operators. We believe the market has overreacted, as private schools are in fact helping to relieve the burden on public expenditure of local governments. Hence we view that the policy change would not cause major disruption to Wisdom’s operation and profitability. Management also stated that the negotiation progress with local governments for opening new schools remained smooth after the above “Decision” was introduced.