Higher education providers have the “strongest growth prospects” among China-based for-profit education companies, according to Fitch Rating.
China’s expansion of higher vocational education should continue to support “strong” enrolment growth among this cohort of education providers over the next two years, the credit-rating agency added.
In 2019, higher vocational education enrolments grew by 31% year-over-year as a result of government-backed initiatives, Fitch said, noting that this was “the highest among all private education segments”.
Fitch added that enrolments will double from one million in 2019 to two million by next year.
Higher education companies “also enjoy faster growth potential” than K12 operators, the firm said, with regards to tuition fee increases and scale expansion due to less stringent regulations.
Unlike compulsory schools providing Grade1-9 education, which cannot be for-profit, higher education providers in China can pursue growth via acquisitions.
Meanwhile, admission rates in higher education remain low, below 60%, providing ample headroom for growth, Fitch said.
Favourable government policies, high entry barriers characterised by a complex and lengthy approval process and sizeable initial capital commitment, coupled with improved funding access, have prompted listed Chinese private higher education companies to expand aggressively through M&A since 2018 – a trend Fitch expects will continue
China Education Group, China’s largest private higher education company by revenue, spent over CNY4 billion on acquisitions from the financial year ended August 2018 to FY20, while spending by the second-largest company, Hope Education Group Limited, amounted to CNY1.8 billion to date in FY21, compared with less than CNY500 million over the past three years.
China Education Group owns Richmond, The American International University, a private institution in London, UK.
Meanwhile, the policy to convert independent colleges into private universities will improve these schools’ profitability in the medium-to-long term due to savings on management fees to their public university partners for the right to use their school names for better enrolment, Fitch said.
Date published: 11 March 2021