China Education Group aims to boost growth by resuming mergers and acquisitions

China Education Group aims to boost growth by resuming mergers and acquisitions

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The central theses:

  • China Education Group’s revenue rose just 18% in the first half of its most recent fiscal year, slowing from 28.9% growth a year earlier
  • The company has become China’s largest private education company through aggressive mergers and acquisitions, but has slowed its pace of acquisitions over the past two years

By Molly Wen

Even being in a sweet spot can have its ups and downs.

After China Education Group Holdings Ltd. (0839.HK) has not only survived but thrived in recent years, even as much of the private education sector has been hit by a national crackdown, China Education Group Holdings Ltd. learns. (0839.HK) that a government favorite does not necessarily have to be strong in terms of long-term growth. The company’s focus on vocational education spared it the fallout of China’s high-profile education crackdown two years ago, which focused on after-school tutoring for elementary school students.

But the latest interim results for China’s largest private educators show its steady growth may be slowing during the pandemic as the labor market recovers after China officially scrapped most of its Covid controls since last December. China Education’s revenue reached 2.78 billion yuan ($402 million) in the six months to February, up 18% year on year, while net profit rose 15.1% to 1.05 billion yuan grew, as the results show.

While those numbers look good on the face of it, the growth rate is about half the more than 37% growth the company achieved in fiscal 2020 and 2021 during the pandemic. Even in fiscal 2022, the company’s revenue grew 28.9%, while net income rose even more at 41.5%. That makes the latest results far from best-in-class.

Shares of the company fell 2.9% the day after the announcement, extending the fall that saw it fall from HK$13.50 at the end of January to its last level of around HK$7. Despite this, the major investment banks remain optimistic about their prospects. Haitong International pointed out that the company has strong growth momentum as…

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