Learning Curve in China Benefits Kids and Investors

BEIJING (TheStreet) -- Instead of driving to soccer practice, the Chinese version of a "soccer mom" shuttles her only son or daughter to a math tutor on Saturday mornings, an English training center Saturday afternoons, and Sunday morning piano lessons. The kid might relax a little before starting Sunday night homework.

This sort of running around for weekend schooling -- aimed at helping a child get ahead even in kindergarten, get into college and get a good job -- is a big reason why companies offering educational services are now stock investor favorites in China.

Parents across eastern Asia push extra education for pre-high schoolers. But in terms of customer volume no country comes close to beating the business potential in China, home to about 235 million children aged 14 and under. Moreover, Chinese parents are motivated by the one-child policy, which only recently was relaxed by the central government, to spare no expense that might help a son or daughter succeed.

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Some companies such as Pearson's (PSO) Wall Street Institute English schools operate computer-outfitted learning centers in urban shopping districts, while others provide in-home tutoring or online instruction. A French company called Pop Languages, whose language curriculum revolves around pop music songs, is one of many chain operations with franchisees. Singapore-based Wee Care runs franchised learn-play centers for the under-age-6 crowd.

Many American investors are familiar with New Oriental Education (EDU), perhaps the country's biggest learning center operator, which has been listed on the New York Stock Exchange since 2006. It focuses on English, core subjects and college entrance exam training.

Increasingly popular are Internet-related services including so-called online-to-offline, or O2O, businesses that attract customers through the Internet and steer them into storefront learning centers. One example is Shenzhen-listed Qtone Education, whose stock value rose about 20% in June.

Qtone's core business model involves online systems to help parents find and directly interact with teachers or learning centers in some 29 cities nationwide. A recent Founders Securities report recommending Qzone stock said the company encourages "stable, cooperative relations" between parents and teachers.

Core-subject tutoring is the focus of a private company backed by Bain Capital called 1Smart Education. The company operates a franchise system and attracts customers to its more than 100 learning centers nationwide by promoting its teachers, where they attended university and their academic awards.

Analysts are also recommending companies in the online education sector, which a recent Qilu Securities report said is already a "200 billion yuan business" in China and still has "enormous room for development." Not only are more families than ever wired to the Internet at home and through smartphones, but Qilu said the central government is "gradually liberalizing education policy" in ways that encourage learning through the Internet.

Qilu's recent recommendations include Talkweb, which provides teaching tools for primary school children through mobile Internet connections and claims 6 million customers, and a software maker called Lanxum whose products are used for educational videoconferencing and related services. Both companies are listed in Shenzhen.

Another recommendation is Shanghai-listed Xin Nan Yang, a technical and manufacturing-related education services provider closely affiliated with Shanghai Jiatong University and institutions in Southeast Asia. Its stock price has climbed 25% over the past month.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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