May23,201909:00PMGMTSheng.Zhong@morganstanley.comElsie.Sheng@morganstanley.comAttractiveMORGANSTANLEYASIALIMITED+ShengZhongEQUITYANALYST+8522239-7821ElsieShengEQUITYANALYST+8523963-0475ChinaEducationAsiaPacificIndustryViewWhat'sChangedFROMTOChinaMapleLeafEducationalSystemsLtd(1317.HK)RatingUnderweightEqual-weightBrightScholarEducationHoldingsLtd(BEDU.N)RatingEqual-weightUnderweightPriceTargetUS$10.50US$9.00RYBEducationInc(RYB.N)RatingEqual-weightUnderweightPriceTargetUS$8.50US$6.50ChinaEducationGroupHoldingsLtd(0839.HK)PriceTargetHK$0.00HK$14.90RatingNAOverweightYuhuaEducation(6169.HK)PriceTargetHK$0.00HK$4.10RatingNAOverweightChinaNewHigherEducationGroupLtd(2001.HK)PriceTargetHK$0.00HK$3.80RatingNAOverweightWisdomEducation(6068.HK)PriceTargetHK$0.00HK$4.10RatingNAEqual-weightChinaEducationChinaEducation||AsiaPacificAsiaPacificBeSelectiveonSchoolOperators;InitiateonCEGandYuhuaatOWWepreferhighereducation,whereprogramquality,operations,andlocationwillbekeydifferentiatorsamidregulatorychange,asfor-profitregistrationunfolds.WearecautiousonK-12,givenregulatoryrisk.CEGandYuhuaareourtoppicks.IndustrystructuraltrendsfavorhighereducationoverK12:WebelievethehighereducationspaceismorefavorableforschooloperatorsthanK12,given:(1)populationandenrollmenttrends,(2)privateschools'positioningintheeducationsystem,and(3)upcomingregulatorychanges.Compulsoryeducation(Grades1-9)isfullypenetrated,andweexpectthetrendsofincreasinggovernmentfiscalspendingandtighterregulationtoachievemoreequalityforjunioreducation.Thatsaid,someregionalopportunitiesstillexist,suchasWisdominGuangdongprovince.Formoredetails,refertoourindustryreport.Overweighthighereducationplayers:WeinitiatecoverageofChinaEducationGroup(CEG),YuhuaEducationandChinaNewHigherEducation(CNH),eachatOW.CEGisatop-qualityhighereducationlistco,benefittingfromfavorableschoollocations,solidschoolquality,andastrongbalancesheet,whichiskeyforM&Agrowthandlandcostpayments.Yuhuaischangingitsfocustohighereducationandhasdemonstratedstrongmanageme...
