China Aviation Securities: AI ignites the fire of the education industry, and the business transformation scene is clear

According to the Zhitong Finance APP, China Aviation Securities released a research report stating that based on the domestic background of "policy benefits + supply clearing + performance recovery," AI is expected to help the education industry "set sail again." In terms of policy, the draft for public consultation in February 2024 clarifies the details of compliant and orderly operations, providing a stable policy environment for subject education and quality education development, with the "double reduction" policy remaining unchanged; in terms of operations, several leading education training companies mutually confirm high performance growth, and the effects of business transformation are beginning to show, with growth elasticity reappearing; in terms of market space, the education industry has anti-cyclical capabilities, and under the background of supply clearing, parents' willingness to pay is strong, with clear commercial transformation scenarios and broad future market space.

In the short term, under the AI wave, the capabilities of large models continue to improve, multi-modal technology is maturing, educational applications are accelerating their implementation, and the level of intelligence is continuously improving, with blockbuster applications expected to emerge, helping companies achieve performance fulfillment. In the medium term, the "AI + education" model is expected to help allocate teaching resources fairly, narrowing the gap in educational resources between regions and schools, achieving a broader range of educational equity. In the long term, the educational revolution under the AI wave may disrupt traditional social structures, talent cultivation mechanisms, and cultural inheritance.

The main viewpoints of China Aviation Securities are as follows:

On Policy: AI technology empowers, promoting education to become increasingly "fair + high quality."

Some thoughts on the education training industry and the "double reduction" policy: From a capital perspective, the "double reduction" policy aims to avoid the social orientation of economic capital shifting to cultural capital, strictly controlling the transformation of public government actions into market behaviors driven by economic interests, thereby promoting the realization of educational equity. From a talent selection perspective, the "double reduction" aims to reshape a healthy selection mechanism for the high school entrance examination and college entrance examination, transitioning from exam-oriented education to quality-oriented education. From a long-term perspective, the "double reduction" helps reverse the social phenomenon of educational involution, reducing students' academic burden and parents' financial burden, contributing to improving citizens' quality of life and enhancing young people's sense of happiness. China Aviation Securities believes that the "double reduction" policy, as an important policy program for the sustainable and healthy development of the country and society, will not waver, and the boundaries of the policy will become increasingly clear and defined.

On Supply: Education training institutions accelerate their exit, "AI + education" rides the wind.

Supply clearing: After the "double reduction," the supply of the education training industry has significantly cleared, and the industry market size has greatly reduced. As of the end of February 2022, the reduction rate of offline subject education training institutions in the compulsory education stage was 92.14%.

Increase in AI supply: The "AI + education" model and application landing are accelerating, with a comprehensive transformation of "teaching, learning, testing, and management." With policy support, the demand for software and hardware is accelerating the landing of large educational models, providing students with a higher quality and more efficient learning experience, and helping teachers and schools optimize teaching and management.

Rise of AI training: The demand for talent is boosting, and policies are supporting the burgeoning of artificial intelligence training: McKinsey's latest report shows that by 2030, China's demand for AI professionals is expected to reach 6 million. Currently, there is a talent gap of about 4 million people, and the demand for training that "cultivates AI awareness from a young age" and "AI-related vocational skills" will continue to grow On Demand: Qualitative Analysis of Counter-Cyclical Industries, Relatively Inelastic Education Demand

The number of students in schools remains basically stable, and diverse educational demands are still guaranteed; education consumption maintains high resilience, with government support for hardware improvement and updates in public schools; after the "double reduction" policy, the demand for learning machines has surged, indirectly confirming that educational demand remains strong, with policy guidance shifting demand release from training institutions to hardware; the demand for vocational skills training has surged due to high salaries in AI-related positions.

Recommended Focus Areas: AI Education Training: Xueda Education (000526.SZ), Shengtong Service (002599.SZ), Kingswood Education (300192.SZ); AI Education Applications: Doushen Education (300010.SZ), JIAFAET (300559.SZ), Southern Media (601900.SH); AI Education Hardware: IFLYTEK (002230.SZ), WANXIN MEDIA (601801.SH)

Risk Warning

Macroeconomic Volatility Risk: China is currently in a period of economic recovery, and if there are macroeconomic fluctuations or deviations from economic expectations, the industry will be impacted.

Industry Regulatory Risk: In response to industry chaos, regulation may become stricter, and some companies may face restructuring risks.

Technological Development Below Expectations: The development of hardware and software may not meet user demands, and the "AI + Education" development may fall into difficulties.

Market Competition Risk: The "AI + Education" market is highly competitive, with continuous product upgrades, and some companies may be eliminated.

Market Promotion Below Expectations: The market acceptance of "AI + Education" products is low, making it difficult to form incremental market demand.

Residents' Consumption Confidence Below Expectations: Uncertainties such as reduced consumer spending, decreased frequency of electronic product consumption, and changes in consumption structure