Key Takeaways:
- The number of new students enrolled at China East Education fell 7.7% in the first half of 2024, as the company put a bigger emphasis on high-value recruitment
- Demand for places on vocational courses is expected to rise in line with a growing market for blue-collar workers and higher salaries for some skilled job
By Molly Wen
Struggling to find a job in a weak economy, many Chinese graduates are having to roll up their sleeves and retrain for work in skilled trades or service industries.
Times may be tough for college leavers, with a shrinking pool of entry-level posts in well-paid professions, but the troubled state of the jobs market presents an opportunity for vocational training providers such as market leader China East Education Holdings Ltd..
More than 11.7 million Chinese students graduated from college this year, but many of them could only find blue-collar jobs, even working as baristas or pastry cooks. Looking to acquire marketable skills, some job-seekers put their academic credentials to one side and signed onto practical training programs for would-be electricians and fashion designers.
Against that backdrop, China East Education has posted a slight rise in half-year revenues and a bigger jump in profit. The number of new students taking its job-oriented courses dipped, but the company was able to earn more for teaching some of its more popular courses, such as training for services generated by the electric car industry.
In its earnings report released last Wednesday, the company said revenues rose 1.6% to 1.98 billion yuan ($278 million) in the first half of 2024 from the same period a year earlier. Net profit jumped 33.2% to 272 million yuan, helped by lower costs of materials, rent and advertising as well as depreciation of school campuses. Selling expenses fell by 49 million yuan, allowing gross margin to rise by two percentage points to 53%.
The results were a mixed bag, reflecting the flux in the jobs market and a shift in the company’s enrollment strategy. The overall number of new students fell 7.7%, a drop attributed to a new focus on high-value business over volume, after the company adjusted its syllabus to prioritize more lucrative and longer-term programs. The average annual tuition or service fee per student rose at all its schools offering training in culinary skills, information and internet technology, except for specialized programs in beautician skills and baking Western-style pastries.
Programs in automotive services saw the biggest rise in annual tuition fees per student, up 7.4%. The most popular long-term courses in auto skills even shot up to 10,800 yuan in annual tuition costs from 6,800 yuan in 2023. New enrollments in courses lasting between one and two years jumped 41.6% to 1,212, while sign-ups for three-year programs slipped 4.3% to 6,720. The rapid rise of China’s electric car industry is fueling demand for related vocational training, pushing the company’s revenue share from automobile service skills from 13.6% in 2019, before the Covid pandemic, to 22.6% in the first half of 2024.
While many courses in automotive and beauty services are flourishing, the company’s core business of chef training has been flagging, hit by growing use of pre-prepared dishes in the food industry. The semi-finished products rolling off food assembly lines have allowed restaurant chains to slash labor costs, reducing demand for fine culinary skills. The number of new students at Anhui New East Cuisine Institute, which provides comprehensive cookery training, fell 11.2% to 34,700 in the first half of the year, while new entrants for courses in pastry making and Western cuisine sank 12.9% to 7,549. The revenue share from culinary training plunged to 63% in the latest set of earnings from 81% in the first half of 2023.
Competition From The State System
Falling recruitment numbers, especially for programs lasting more than a year, would weigh on the company’s earnings in the future. Hence China East Education has embarked on a cost-containment drive, reducing its number of schools and centers across China by 11 to 234 this year. Company official Hua Jun told the media that China East Education would no longer focus on pursuing rapid expansion and revenue growth but would instead aim to optimize profit.
After going public in Hong Kong in 2019, China East Education used nearly half of the IPO proceeds to buy land and resources to build regional centers for its range of courses, seeking to bolster its brand with state-of-the-art facilities on industrial-scale campuses. Vocational education parks in the Chinese provinces of Sichuan, Shandong and Guizhou have come on stream after completing the first phase of construction, according to the earnings release.
The campuses in Jiangsu and Jiangxi are still at the planning stage. The company said about 3 billion yuan has been spent on constructing the regional centers across China and another 2 billion yuan had been earmarked for the project in the future. Cost savings from renting facilities should offset the initial construction investment in the first three years.
Chinese government policies have been supportive of vocational education, and rising demand is pushing up blue-collar pay, boosting interest in training programs. More than 90% of students on China East Education’s long-term programs are placed in jobs or set up their own businesses after graduation, according to company figures, while employment rates for automotive technology and cosmetics skills are even higher at around 96% and 95%.
However, Chinese authorities have been providing more subsidies and support for public institutions that offer vocational training. With lower tuition fees, those public institutes could present a challenge to private providers, as they compete to attract students in straitened economic times.
Looking forward, China East Education said it plans to keep expanding and diversifying its course offerings in response to industry trends and market demand, highlighting areas such as healthcare services or artificial intelligence.
China East Education has an industry-beating price-to-earnings (P/E) ratio of 13 times, nearly double the 7 times for fellow training provider China Education Group (0839.HK). Investors will no doubt be happy to hear that the company is placing a heavy emphasis on maximizing profits in the future.
This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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