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A Different Kind of Arms Race in China

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A Different Kind of Arms Race in China
By Scott Chan
The SAT, offered seven times a year, is a rite of passage for U.S. high school students who wish to go to college. A high school on the standardized exam can mean the difference between admission to a college of one’s dreams and settling for a backup. U.S. students have the option to take the standardized exam as many times as they want and have the option to report the score of their choice in their college applications.

Since most students choose to take the SAT in their junior and senior years, students usually begin to prepare in the high school, though some begin to prepare as early as middle school.

As important and challenging as the SAT may be to American students, however, it’s nothing compared to the gruelling exam their counterparts across the Pacific must tackle. China’s annual National College Entrance Examination (known as “gaokao” in Chinese) is held only once a year, in June, and the competition and pressure are so intense that some students use intravenous amino acid drips in order to replenish energy in order to burn the midnight oil.

The exact length and content of the gaokao vary by province but generally lasts about nine hours over two days and consists of a number of subjects, including English. The questions are notoriously difficult and the exam is widely held to be the toughest in the world.

Only about 60 percent of exam takers pass and far smaller percentage make it into top universities. Due to limited spots, in 2016 the top-two universities only accepted less than 6,700 total students out of 9.3 million who took the gaokao (0.07 percent). It’s not uncommon for students to spend their entire senior year preparing for this exam, including nearly all waking hours studying—in school and at home.

In a culture that greatly values education and academic prestige, parents feel pressure to partake in the education arms race. A degree from a top university could be the key difference maker in a very competitive job market. After all, if many other students are getting extra help, then not getting tutoring for your kids would put them at a disadvantage. Many children begin receiving tutoring as early as primary school. A common Chinese saying nowadays goes: “don’t let your child lose the race at the starting line.” As the population becomes more affluent and the middle class expands, parents are spending more money to get their kids as much extra academic help as possible as early as possible, a boon for tutoring businesses.

New Oriental Education & Technology Group (NYSE: EDU) and TAL Education Group (NYSE: TAL) are two leading Chinese private tutoring operators whose stocks have soared this year thanks to said growing demand.

By student enrollment, New Oriental is the largest tutoring operator in China. In fiscal 2017, ended May 2017, it had 4.9 million student enrollments. At the end of May, it had 855 learning centres, including 77 schools, 20 bookstores and an extensive online platform with over 17 million registered users and over 22,000 teachers in 65 cities. The company originally began as a test preparation center focused on preparing Chinese students for U.S. exams to study abroad, but has since increasingly relied on domestic K-to-12 tutoring as the key revenue growth driver.

As for TAL, at the end of May it owned 567 learning centres in 35 cities. This marks an addition of 60 centres and 5 cities during the February-to-May quarter. Student enrollment in the quarter grew by 62 percent to 1.05 million compared to a year ago, which drove the revenue increase of 65 percent, to $321.9 million. Compared to one year ago, the number of centres and cities grew by 172 and 10, respectively.

TAL commands a higher P/E, but it is the faster growing of the two. Enrollments grew 70 percent year over year in the last fiscal year (to 3.9 million), compared to New Oriental’s 40 percent. It’s now very aggressively opening new learning centres. On the other hand, New Oriental is already past its fast-expansion phase. It has intentionally slowed its annual learning centre increase to about 8 percent on average.

The net result is TAL will enjoy faster-growing revenues but its profits will likely be more volatile due to the faster-growing costs of opening new centres and hiring new staff. Over the next three to five years, we expect New Oriental’s earnings to share to rise at an annual rate in the 20’s while TAL, assuming no hiccups in its growth strategy, could expand at 40 percent or better a year.

Unless the Chinese government decides to overhaul its education system to ease exam and university admission requirements or restrict how much tutors can charge, the tutoring market will continue to grow. Some estimates expect after-school tutoring revenues to at least double by 2021.

The penetration of K-to-12 after-school tutoring in Tier 1 cities (China’s five largest) is pretty high—estimated to be around 80 percent—but there are still plenty of underserved areas and both companies are expanding into said areas. As China’s GDP continues to rise, more and more families from smaller cities and even rural areas will seek to tutor for their children in order to pursue a better life. New Oriental and TAL’s offering of online courses allows them to capture students who reside in areas their learning centres do not serve.

Although they are two of the largest private tutoring operators in China and they are both gaining market share, from smaller competitors, New Oriental and TAL still account for a small share of the market, probably 5 percent or less combined. Expect both to continue to grab an increasing share of the growing pie.

Both stocks are richly valued, due to expectations of fast growth. In percentage terms, TAL will likely experience higher highs and lower lows than EDU, so more conservative investors probably would prefer the latter but the potential upside is higher for TAL. Both stock prices declined recently in what appears to be profit taking but have quickly recovered most of the lost ground.

This obscure plan doles out up to $1,003 a month in extra government cash
If you call your congressman, senator, or even the Social Security office down the street and ask them about this little-known opportunity, I’m certain they’ll tell you they’ve never heard of it. That doesn’t mean it doesn’t exist. Or that they’re trying to keep it a secret.

This income-boosting loophole is so obscure, less than 1/10 of 1% of Americans are taking advantage of it.

Boney M. – Let It All Be Music (1979)

Let It All Be Music – The Party Album is a 2CD compilation by disco group Boney M
Boney M is a truly legendary name in the history of music. This glamorous and extremely likable group came together in 1976 and ever since then occupied a special place in the hearts of music lovers the world over.
Frank Farian, Liz Mitchell, Maizie Williams, Marcia Barrett and Bobby Farrell formed Boney M.
Though Boney M made modest beginnings, they soon turned into a major hit with their music which was catchy, lively and very rhythmic. Boney M’s music has influences of Reggae, Funk, Rock, Gospel and Disco.
Their songs had distinctive soul soothing melodies and foot-tapping beats and this is probably the reason why Boney M’s songs were played non-stop at all the discos around the world.
Boney M became a sensational hit and remained so until today.

Boney M. – Let It All Be Music (1979)

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Books are useless! I only ever read one book, “To Kill A Mockingbird,” and it gave me absolutely no insight on how to kill mockingbirds! Sure it taught me not to judge a man by the color of his skin…but what good does *that* do me?

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Army had half a day.

Now, when you do this without getting punched in the chest, you’ll have more fun. Bad news. Andy Griffith turned us down. He didn’t like his trailer. Not tricks, Michael, illusions. I care deeply for nature.

No, I did not kill Kitty. However, I am going to oblige and answer the nice officer’s questions because I am an honest man with no secrets to hide. As you may or may not know, Lindsay and I have hit a bit of a rough patch.

I don’t understand the question, and I won’t respond to it.

I’m afraid I just blue myself. Not tricks, Michael, illusions. He’ll want to use your yacht, and I don’t want this thing smelling like fish. Really? Did nothing cancel? It’s called ‘taking advantage.’ It’s what gets you ahead in life.

Whoa, this guy’s straight?
We just call it a sausage.
I’m a monster.
Did you enjoy your meal, Mom? You drank it fast enough.

I care deeply for nature. No, I did not kill Kitty. However, I am going to oblige and answer the nice officer’s questions because I am an honest man with no secrets to hide. I don’t understand the question, and I won’t respond to it.

Say goodbye to these, because it’s the last time!
Did you enjoy your meal, Mom? You drank it fast enough.
I’m afraid I just blue myself.
We just call it a sausage. It’s a hug, Michael. I’m hugging you. I’ve opened a door here that I regret. Now, when you do this without getting punched in the chest, you’ll have more fun.

We just call it a sausage. No! I was ashamed to be SEEN with you. I like being with you. That’s why you always leave a note! No! I was ashamed to be SEEN with you. I like being with you. I don’t criticize you! And if you’re worried about criticism, sometimes a diet is the best defense.

As you may or may not know, Lindsay and I have hit a bit of a rough patch. Steve Holt! It’s called ‘taking advantage.’ It’s what gets you ahead in life. That’s what it said on ‘Ask Jeeves.’ Guy’s a pro.

Well, what do you expect, mother? He’ll want to use your yacht, and I don’t want this thing smelling like fish. That’s why you always leave a note! I’m afraid I just blue myself. We just call it a sausage.

Marry me. I’m half machine. I’m a monster. He’ll want to use your yacht, and I don’t want this thing smelling like fish. I’m a monster.

Marry me. Get me a vodka rocks. And a piece of toast. Get me a vodka rocks. And a piece of toast. Really? Did nothing cancel? No… but I’d like to be asked!

No! I was ashamed to be SEEN with you. I like being with you. I’ve opened a door here that I regret. No! I was ashamed to be SEEN with you. I like being with you. Guy’s a pro.

Well, what do you expect, mother? I’m a monster. That’s what it said on ‘Ask Jeeves.’ I don’t criticize you! And if you’re worried about criticism, sometimes a diet is the best defense.

No! I was ashamed to be SEEN with you. I like being with you. Bad news. Andy Griffith turned us down. He didn’t like his trailer. Marry me. What’s Spanish for “I know you speak English?” Did you enjoy your meal, Mom? You drank it fast enough.

I don’t criticize you! And if you’re worried about criticism, sometimes a diet is the best defense. Now, when you do this without getting punched in the chest, you’ll have more fun. Guy’s a pro. What’s Spanish for “I know you speak English?”

Well, what do you expect, mother? I hear the jury’s still out on science. Steve Holt! I care deeply for nature. I don’t criticize you! And if you’re worried about criticism, sometimes a diet is the best defense.