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Key Takeaways:
- Vocational education has been all the rage these days after Chinese authorities’ cleanup on subject-based tutoring.
- Skillful Craftsman Education Technology plans to partner with a Chinese company to build a Meta-Factory for vocational skills training.
- The Company’s future trajectory is noteworthy when trying out the new frontiers.
Myriad after-school tutoring institutions in China have been quiet since the massive cleanup launched last year by the Chinese authorities. Many giants like New Oriental Education & Technology EDU are charting a new path, while those smaller ones seem to unwind their businesses.
Skillful Craftsman Education Technology EDTK, a small-size online education provider claims to be an exception. It is making things for the future by building Meta-Factory for vocational skills training.
The sign of expansion into metaverse-related business has been mentioned in the Company’s full year 2020 financial report. Mr. Xiaofeng Gao, the Chairman and CEO, commented in the earnings call, “With respect to technology enhancement, the company will integrate metaverse technology with big data, cloud technology and traditional Augmented Reality (AR) simulation teaching capabilities. Through co-constructing metaverse vocational labs with universities and ecological chain companies, Skillful Craftsman plans to launch a multi-person collaborative simulation skills training platform based on metaverse.”
In the company’s latest announcement, the idea is further elaborated. It is planning to partner with an enterprise located in Jiangsu Province, China to jointly develop the Meta-Factory about metaverse in a bid to provide an online stimulation skills training center for vocational education students, job seekers and technical workers. Phase one of the Meta-Factory construction is expected to be up and running in 3 years. Meanwhile, it aims to help vocational schools establish tailor-made training curriculum based on a particular profession.
In the Meta-Factory, a simulation digital factory modeled on the original prototype is created with the exact production environment and process where trainees can practice their skills and generate similar outcomes and data information as they do in real workshops through VR or AR technology.
According to the partnership, the two parties are independently responsible for their R&D expenses and the marketing costs for the construction of the Meta-Factory, and equally, share the profit they get from this project. The mission for Skillful Craftsman in this project is to push the establishment of the multi-persons and multi-scenarios training center for vocational schools off the ground. They agreed to make adjustments to their partnership based on market environments going forward.
2021 has seen considerable investments in the metaverse, which seamlessly integrates the physical life and the digital world. People can do anything in the real world in this unified and virtual community, such as working, socially interacting, gaming, shopping, and of course, studying. Given that the development of the metaverse is still in its infancy, any sort of assumption or exploration of this world could stand to become the trendsetter.
The outbreak of the Covid-19 pandemic has not only dotted people’s lives with more digital elements but also deluged the metaverse with market attention. A Goldman Sachs’ report showed that the potential metaverse market would range from US$3.75 trillion to US$12.46 trillion, a boon both to a change in the consumer landscape and growth opportunities in every walk of life. In the education sector, virtual learning could upend the traditional education model because of its low-cost but effective approach to get access to skills training. That is also one of the functions of the Meta-Factory.
Policy driver
Skillful Craftsman’s new tryout is driven by the authority policies. Last September, the “Double Reduction” policy was introduced by the Chinese government to ease the homework burden on students, prohibiting private education institutions from offering subject-based extracurricular tutoring to most primary and secondary school students. The new policy was a blow to many companies like Gaotu Techedu Inc GOTU and New Oriental that put their business to a halt. Following that, a series of favorable policies regarding vocational training was in place.
In all those guidelines, the Chinese government focused on the cultivation of skilled talents and encouraged rural-oriented vocational education to reach out to a wider population of farmers and laid-off workers. Meanwhile, it planned to allocate more benefits and allowance to support listed companies that have engaged in vocational education-related businesses.
These aggressive policies were formed because of two major factors. One was the nation’s aging population that lead to a labor shortage. The other was stringent pandemic containment measures that added a layer of difficulty for enterprises to hire employees. China is now struggling to make changes starting from reform in compulsory education and the adoption of flexible employment.
The new guidelines also cast a light on Skillful Craftsman’s future path. One month ago, it successfully acquired 60% equity interest of Wuxi Talent Home Information Technology Co., Ltd. ("WTH"), one of the largest flexible staffing platforms in Jiangsu Province. The company made the acquisition to expand its online business presence and vocational training business.
Good Prospect?
The policy preference is a powerful driver to vocational education, but the fruition remains to be seen at a time when the industry has not yet fully recovered from the “Double Reduction” crackdown. Furthermore, traditional video teaching is flanked by mobile live streaming tutoring and short-video training courses, which are more appealing and accessible to new users.
In the company’s financial results for the first six months of the fiscal year 2022, both revenue and gross profit dropped compared to the same period of 2021, coupled with increased costs in the lay-out of new businesses and new technology, has tainted its performance. To tackle this, the Company management has been looking for new entrants and a closer tie with the government. To date, training courses for fundamental traditional Chinese medicine and hotel management are available to students.
Likewise, the execution of the Meta-Factory will aggravate Skillful Craftsman’s cost control, but the potential market size and the volume of customers it would attract is noteworthy as few Chinese companies have their footprints in virtual learning for vocational education. Though Skillful Craftsman isn’t the strongest in this sector, it could share a big piece of the pie in the vast Chinese market.
In terms of market valuation, Skillful Craftsman’s stock price has bounced back beyond the 1-dollar mark and is on a steady rise after many dives. In the short run, the Chinese government’s favorable policies toward vocational education remain unchanged could provide shelter for its development; in the long run, the company hopes that the successful launch of the Meta-Factory would promise it a glittering growth.
Reference:
https://www.sec.gov/Archives/edgar/data/1782309/000110465921146499/tm2134633d1_ex99-1.htm
https://www.statista.com/statistics/251524/population-distribution-by-age-group-in-china/
Image credit: Mentor Finance
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