- Update 1:58pm: Adds Credit Suisse analyst comment.
- Chinese tutoring companies Tal Education (NYSE:TAL), New Oriental Education (NYSE:EDU) and GSX Techedu (NYSE:GOTU) dropped on investor concerns that China is looking at more bearish regulations for the companies.
- Credit Suisse attributed the weakness to increased concern that China will ban after school tutoring on weekends and holidays in grades 1-9, according to analyst Alex Xie. Investors appear to believe that there is a higher risk to a "bear case" than before.
- Xie also noted that the "Law of Protection of Minors" (Rule no. 33) went into effect on Monday and it mentions that school shouldn't conduct group classes on weekends, summer holidays and winter holidays in grades 1 through 9.
- Xie also highlighted that news flow indicates that tutoring companies appear to be cutting their advertising and headcounts ahead of policy announcement.
- There's some scuttle that China is going to lower the profitable of the companies to lower costs of raising children as part of the country's centralized birth plan, according to some speculation traders were circulating. China announced on Monday that it will allow married couples to have three children in a policy shift.
- Chinese tutoring companies have been weaker in recent weeks after after Chinese President Xi Jinping stressed the need for regulations for both online and offline after-school training institutions. Yesterday, GSX Techedu fell after Goldman downgraded it on slower enrollment, revenue growth expectations.
- Credit Suisse's Xie also wrote last week that in a bear case scenario, Chinese policy could completely ban new learning center expansion, advertisement and price hikes.
- Today, Tal Education fell, New Oriental and GSX all dropped about 14%. China Online Education Group (NYSE:COE) declined 3.7% and OneSmart International (NYSE:ONE) fell 3.1%.
- GSX short interest 15% of float.
- Last week, Tal Education, New Oriental, GSX Techedu shares rebound after officials deny tutoring ban.