As a policy-sensitive industry, the Hong Kong education sector has undergone three years of deep adjustment. Although AI+ has attracted some capital attention to the education sector in 2024, the pressure from trapped positions is layered, making the rebound path long and difficult. However, the monthly line has stabilized, and the trend is leaning towards optimism, with continuous improvements in the policy environment.
The year 2024 is a significant turning point, with the education sector recording a slight increase. Some individual stocks have achieved higher premiums, such as China Xinhua Education (02779), which rose by more than 25%. This is mainly due to the warming investment sentiment in Hong Kong stocks, especially the significant inflow of funds in Q2 and Q3; the impact of basic education policies has basically cleared, leading to a reversal at the valuation bottom; and the fundamentals of the industry are receiving attention, with vocational education gaining favor.
However, Q4 saw a significant reversal, mainly due to extreme market conditions since October, leading to capital flight amid large market fluctuations. Most vocational education stocks achieved considerable premiums in Q2 and Q3, with the sector rising by more than 15%, but Q4 saw a drop below the levels of the previous two quarters. For example, leading stock Zhongjiao Holdings fell by more than 35% in a single quarter. Nevertheless, the wave of artificial intelligence sweeping through the education sector is expected to reshape the sector's valuation in 2025 through policy and fundamentals.
The information landscape for the education industry in 2024 is relatively flat, but AI has provided more policy support. So, which targets will have greater value prospects in 2025?
<h2>Policy Improvement, Education Sector Stabilizes and Rebounds</h2>
From a policy perspective, in the field of basic education, after the draft for approval in 2018 and the &#34;double reduction&#34; policy in 2021, the state has advanced while the private sector has retreated, with restrictive policies being cleared. In 2024, AI has become the main theme of basic education policy. The Ministry of Education has also taken a series of positive measures this year to encourage and support the deep application and integration of AI technology in the education sector. For example, on November 27, the General Office of the Ministry of Education issued a notice on strengthening artificial intelligence education in primary and secondary schools, emphasizing the basic popularization of AI education in primary and secondary schools before 2030.
In the field of higher education, on one hand, the support policies in the teaching field have shifted from quantity growth to quality growth; on the other hand, in the application field, there is support for the integration of industry and education, and school-enterprise cooperation to cultivate socially adaptable talents. Significant policies include the 2019 notice from the State Council on the implementation plan for national vocational education reform and the 2022 opinions issued by the General Office of the CPC Central Committee and the General Office of the State Council on deepening the construction reform of the modern vocational education system.
In 2024, policies continue to strengthen the integration of industry and education in higher education. In July, the &#34;Decision on Further Deepening Reform and Promoting Chinese-style Modernization&#34; pointed out the need to deepen the &#34;accelerated construction of a vocational education system that integrates vocational and general education and industry-education integration.&#34; In November, the National Development and Reform Commission and other departments issued opinions on deepening the integration of industry and education in the housekeeping service industry, encouraging higher vocational colleges with housekeeping-related majors to expand their enrollment scale for related majors in secondary vocational schools.
The impact of policies on basic education is gradually becoming positive. It is worth noting that the performance of vocational education has always had a positive impact, with most listed vocational education companies maintaining double-digit revenue growth. According to a research report by Shenwan Hongyuan, higher education companies have increased their hiring of teachers, with an average annual increase of 16% in the number of teachers over the past five years, benefiting from the growth in student enrollment and tuition increases, with an average revenue growth rate of 23% over the past five years
The positive impact of policies and fundamental support will stabilize and rebound the education sector in 2024, but it will still follow the fluctuations of the broader market. On September 24 this year, the China Securities Regulatory Commission released the &#34;14 Measures for Market Value Management&#34; draft for public consultation, and on November 15, the official version was published. Education stocks that have long been trading below net asset value may actively align with policy trends and launch market value management plans. Coupled with the continued popularity of AI + education in 2025, this will guide the valuation recovery of the sector.
<h2>Strong performance in vocational education, higher value for quality stocks</h2>
According to Zhitong Finance APP, the education industry continues to show a divergence in performance. Basic education stocks have been quiet for six years since 2018, but Tianli International (01773) has quietly focused on its core business and actively returned value to shareholders. The education and training industry has actively transformed since the &#34;double reduction&#34; policy in 2021, with leading company New Oriental successfully transitioning to live streaming. Vocational education, supported by policies, has maintained a high growth trend, with leading companies inclined towards heavy asset acquisitions due to their financial advantages, while smaller companies tend to be cautious and primarily focus on light asset strategies.
In 2024, the entire education industry lacks significant announcements regarding mergers and acquisitions, but performance has been outstanding. In the K12 sector, Chengshi Education's revenue and net profit grew by 25.3% and 40%, respectively, and it announced a special dividend of HKD 0.005 per share in December this year. Tianli International Education continues to maintain high growth, accelerating its light asset strategy primarily through a management model, firmly establishing itself as the leader in private K12 education in Western China. Additionally, the company has consistently paid dividends and has increased its share buyback efforts since the beginning of this year, recently announcing a general buyback authorization to continuously enhance shareholder returns.
In the education and training sector, New Oriental represents the industry's transformation. In recent years, its live streaming business, Dongfang Zhenxuan, has thrived, cultivating knowledge-based live streaming talents represented by Dong Yuhui. The high growth of the live streaming business has driven a recovery in performance, with 2024 revenue returning to 2021 levels. Furthermore, companies like Sikao Le (01769) and Zhuoyue Education (03978) have successfully transitioned to quality education, achieving significant transformation results, with both companies realizing high growth in 2024.
Compared to the K12 and education and training sectors, vocational education is relatively unique, having always received policy support and maintaining a high growth trend. For example, Zhongjiao Holdings (00839), New Higher Education Group (02001), and Zhonghui Group (00382) have compound annual revenue growth rates of 27.5%, 23%, and 26.8%, respectively, from fiscal year 2019 to 2024. It is worth noting that Zhongjiao Holdings has a large goodwill value resulting from its previous aggressive acquisitions, and in fiscal year 2024, its net profit declined significantly due to goodwill impairment.
With policy support, vocational education maintains substantial capital expenditures. For instance, Zhongjiao Holdings, as a leading vocational education company, had a net cash outflow of over 1 billion yuan each year from fiscal years 2018 to 2021, with a cumulative net outflow of 11.462 billion yuan, including a staggering net outflow of 4.95 billion yuan in fiscal year 2021. After fiscal year 2022, expansion began to slow down, but it still invests over 1 billion yuan annually in fixed asset purchases. New Higher Education Group has a more stable expansion route, purchasing fixed assets for approximately 300 to 600 million yuan each year, while its net operating cash flow exceeds 1 billion yuan, covering its net investment outflow
The strong performance in the education sector has not been reflected in the secondary market. Amid liquidity shortages, the sector has continued to adjust alongside the broader market. In addition, the industry's neglect of investor returns, combined with high policy sensitivity and a backlog of trapped positions, has dampened market sentiment. In 2024, most education targets began to focus on market value management, with dividends and buybacks enhancing shareholder returns, resulting in significant increases in market value.
Vocational education is an industry that has been mistakenly punished by the market, with a serious divergence between performance and valuation. The valuations of high-performing vocational education targets are very low, providing value investors with opportunities to pick up cheap stocks, and high-quality stocks may be rediscovered.
For example, Zhongjiao Holdings, New Higher Education, and Zhonghui Group have consistently maintained dividends and buybacks. Among them, New Higher Education Group (02001) insists on paying dividends every year, with a cumulative dividend payout ratio of 37.7%. In 2024, it has continued to increase its buyback efforts, with more than 20 buybacks occurring from July to September. Although there have been arrangements for market value management, the valuation remains low due to multiple factors. The PB values of the aforementioned three targets are 0.5 times, 0.4 times, and 0.6 times, respectively, while the PE (TTM) of New Higher Education and Zhonghui Group are only 2.3 times and 3 times, respectively, with dividend yields exceeding 8%.
In summary, the education sector is stabilizing in 2024, with strong fundamentals, especially in the vocational education sector. Driven by performance growth and AI, it may usher in a valuation correction market in 2025, and undervalued high-dividend vocational education high-quality stocks will also attract value investment funds, offering a higher probability of value appreciation

02779

In 2024, the Hong Kong stock market's education sector shows signs of stabilization and rebound after three years of deep adjustment, driven by policy improvements and AI technology. Although the rebound faces pressure from trapped positions, the overall trend is optimistic. Some individual stocks, such as CH XINHUA EDU, have risen more than 25%. However, market volatility in Q4 has led to a significant decline in vocational education stocks. It is expected that by 2025, policies and fundamentals will reshape the valuation of the education sector. The Ministry of Education is actively promoting the application of AI in the education field, emphasizing the popularization of artificial intelligence education before 2030

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Policy improvement + strong fundamentals + AI-driven, the education sector is expected to stabilize and rebound in 2024