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Chinese Education Stocks Rise on Report of Tutoring Approval

American depositary receipts of Gaotu Techedu and New Oriental Education & Technology climb sharply on a report they will be granted government licenses.
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American depositary receipts of Gaotu Techedu  (GOTU) - Get GSX Techedu, Inc. Sponsored ADR Class A Report and New Oriental Education & Technology  (EDU) - Get New Oriental Education & Technology Group Inc. Report rose sharply Monday on a report that the Chinese government plans to grant licenses that would allow them and other education companies to operate.  

Citing sources knowledgeable about the government's plans, The Wall Street Journal reported Monday that China intends to grant licenses to more than a dozen companies that will permit them to provide tutoring.

The companies would be allowed to conduct after-school tutoring for kids on a non-profit basis and to profit from adult tutoring.

In July, China banned for-profit after-school tutoring, restricted capital-raising for tutoring companies and prohibited teaching on weekends and holidays.

Gaotu traded at $3.07, up 7% and New Oriental at $2.1450, up 5%. Gaotu has sunk 88% over the past six months, while New Oriental has dropped 85% amid the government crackdown.

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Chinese authorities also have cracked the whip on major technology companies. Alibaba  (BABA) - Get Alibaba Group Holding Ltd. Report plunged 45% over the past year, recently trading at $159.65, up 0.58%.

“We have cut the fair value estimate of wide-moat Alibaba by 6% to $284,” Morningstar analyst Chelsey Tam wrote last week.

“We have reduced our five-year net earnings estimates due to sluggish macroeconomic conditions and social initiatives. [But] Alibaba’s shares are still attractive.

“As of Oct. 29, we were about 30% lower than the FactSet consensus for non-GAAP EBITDA/diluted EPS/non-GAAP diluted EPS from 2022 to 2024.

“We think we have sufficiently captured the market share loss to Pinduoduo  (PDD) - Get Pinduoduo Inc. Report,  (JD) - Get Inc. Report, short-form video platforms, brands’ e-commerce websites, Weixin mini programs and so on, and reinvestment into the businesses.

“We see upside from Tencent  (TCEHY)  opening up its ecosystem to Alibaba gradually.”