Beststudy Scores Profits By Thinking Outside The Box

Key Takeaways:

• Before the restrictions, academic education contributed nearly 90% of Beststudy’s revenue but the company’s new extra-curricular courses now account for 40% of turnover
• The company has also launched study tours to gain a foothold in a market valued at more than a hundred billion yuan

By Molly Wen

The latest earnings from China Beststudy Education Group (3978.HK) offer a lesson in using creative or critical thinking to find a way out of a crisis.

The company was badly hit by a clampdown on after-school tutoring three years ago, when the government acted to relieve study pressure on children. Beststudy was able to salvage its test-revision business from the cull, which targeted private tuition on subjects in the school curriculum, and then shifted towards offering enrichment programs and study tours to nurture non-academic talents.

Meanwhile, the policy environment recently became more supportive for education in general. In early August, China’s government highlighted education services as a means of boosting consumption amid an uneven economic recovery, leading some investors to sense a possible loosening of the regulatory screws. Against this backdrop, the CSI SWS Education Index, which tracks training-related stocks, rose for nine days in a row.

Beststudy, a leading training enterprise in the south of China, benefited from the education rally. The company’s share price has risen nearly 70% since the start of the year and investors got more positive news last week when Beststudy’s revised business strategy helped to drive a jump in half-year earnings.

Revenue for the first six months of the year rose 68% to 317 million yuan ($44.30 million) from the same period a year earlier, while adjusted net profit surged nearly 169% to 54.41 million yuan. Turnover was still a far cry from the 1.1 billion yuan logged in the first half of 2021, but the profit leap serves to validate the decision to focus on holistic education, sidestepping the official school syllabus.

Before the clampdown in July 2021, Beststudy specialized in providing academic tutoring for individuals or small classes, segments that contributed nearly 90% of its revenue. The regulations wiped out the tutoring business, but Beststudy was still able to offer intensive pre-test coaching for students who were preparing to retake entrance exams for high school or college. The company also launched a range of vocational training courses as well as enrichment programs for school students, covering skills such as critical thinking, computer programming, literature appreciation and outdoors learning.

Income from full-time test preparation services jumped nearly 20% to 124 million yuan in the first half of the year. The company started out in 2000 by coaching high school students for college entrance exams. Five years later it added similar services for children preparing to take entrance tests for high schools. The pre-test business, which survived the government clampdown, offered the company a lifeline while it restructured its business.

Exploring other talents

Faced with the regulatory crisis, other training enterprises shifted to e-commerce and sales of educational hardware. But Beststudy saw a future in promoting learning outside the confines of the school syllabus, with programs labelled as talent education. The talent-based programs were designed to promote skills in areas such as critical thinking, nature study and scientific enquiry with courses including “Curious Young Reporter”, “Thinking Planet” and “Literature and Aesthetic Education”.

These courses were among the first batch of talent products to gain non-academic accreditation from education authorities in Guangdong Province in 2022. In the first half of 2024, Beststudy’s revenue from the talent segment rocketed 321% to 118 million yuan, and the share of total revenue increased from nearly 15% in the first half of 2023 to just under 37%.

The company has also launched study tours to widen horizons and facilitate learning outside the classroom.  China’s market for study trips has flourished in recent years, reaching about 146.9 billion yuan in 2023, a year-on-year rise of nearly 62%, according to data from iiMedia Research. The research firm projects the market for educational travel will reach 242.2 billion yuan in 2026.

Players such as Beijing New Oriental Culture and Tourism, an arm of leading education firm New Oriental EDU, and various travel agencies have also stepped into the market. Study tours typically include lessons from professional teachers and instructors, giving a familiar brand such as Beststudy an advantage when attracting learners.

Keen to boost economic growth, China issued guidelines on Aug. 3 highlighting areas with the potential for higher consumption, including education and training. The directive said education institutions, scientific research bodies and social organizations should be encouraged to make high-quality educational resources available to a wider public. Market-watchers initially saw the move as a signal of easing restrictions on tutoring services. But the policy actually aims to improve the quality and impact of vocational education, while encouraging qualified institutions to provide tutoring on non-academic subjects as a public service, with no fundamental changes to compulsory education.

In any case, the education sector is repairing the damage from the last few turbulent years, judging from operating profits and revenues in recent earnings reports. U.S.-listed TAL Education TAL recently returned to profit and reported revenues jumped 50% to $414 million for its first quarter to May 31.

Beststudy’s price-to-earnings (P/E) ratio stands at around 17 times, well below the 36 times for New Oriental on the Hong Kong market. At these levels the stock may be worth the attention of investors, as education-related demand is still going strong, outpacing overall consumption.

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.