Outlook for Chinese private schools: Not so bad says Fitch

This surprised me:

The coronavirus pandemic will not significantly depress most Chinese private schools’ revenue this year, given the low risk of tuition refunds, says Fitch Ratings.

Private schools with strong financial flexibility may seek overseas expansion as more opportunities arise.

Fitch believes there is low risk of tuition refunds for most Chinese private schools, whose revenues are highly concentrated in tuition fees. Private schools have been offering online academic courses during school closures and are planning make-up weekend and summer classes after school restarts.

However, private schools’ revenue growth is likely to slow moderately in 2020, caused by weaker enrolment growth, reduced ability to raise tuition fees during the economic downturn, and reduced fees from ancillary service, such as food and study tour fees.

For example, China Maple Leaf Educational Systems Limited’s revenue from summer and winter camps and overseas consulting services, which accounted for 13.1% of total revenue in the financial year ended 31 August 2019 (FY19), dropped 40% yoy in 2QFY20, compared to a 17.2% increase a year earlier. Schools of all levels had been closed in China since January 2020, and have re-opened in batches since mid-March, starting with Grades 12 and 9.

Kindergartens, however, will face a significant revenue drop as they are not allowed to offer online courses and are likely to be the last to re-open – not until mid-May at the earliest. Parents are also more likely to withdraw kindergarteners from school.

Although local governments have announced various measures to support kindergartens, such as direct subsidies, rental deductions and preferential tax treatments, those policies mainly benefit inclusive kindergartens. Some kindergartens might not be able to cope with the prolonged cash-flow strains, especially those that collect tuition fees month by month.

Meanwhile, the brick and mortar after-school tutoring providers are getting shredded.

However, we believe that over 70% of medium- to small-sized offline operators — which will only likely return to operation in mid-to-late May — will face a severe cash flow shortage, and nearly half of them may have to close. The circumstances should create a great opportunity for the industry consolidation.

But of course online is booming.


Large online classes are the mainstream product right now, and they also offer the best economic model at present in terms of scalability and profitability.

Interestingly, the current competition landscape still focuses on the respective players’ customer acquisition, conversion and retention capabilities. Product differentiation is not a priority at this stage.

In the after-school tutoring segment, we believe that it will be very difficult for any late-comers to gain a significant market share from the current market leaders.