China Education –K-12after-school tutoring:Embracing a new semester

We reiterate our Outperform rating on China’s leading after-school tutoringbrands TAL and EDU, as we expect the two companies to expand their marketshare in the growing K-12 tutoring segment, underpinned by their quality brandnames. Both companies will report their May-quarter results next week. EDU isreporting on Tuesday, 25 July, followed by TAL on Thursday, 27 July. Weexpect strong results from both EDU and TAL, and we believe enrolment growthmomentum will carry on into the summer and the new semester.

Summer promotion – encouraging multiple course enrolment. TALcontinues to focus its promotion effort in Beijing, offering discounts to studentsregistering for multiple courses. EDU carries out promotions in multiple cities,with some cities providing heavy discounts to grades 7 & 9 students.

Dual/double-teacher models for long-term growth. We believe the evolvingeducational technology and the growing acceptance of online education shouldhelp TAL and EDU expand into lower-tier cities, as they gradually roll out theirdual/double teacher models. Based on our channel checks, EDU is teachingadvanced Mathematics classes utilizing a dual-teacher model – with oneteacher located in Beijing broadcasting to 20+ classrooms.