China’s third largest education provider Puxin surges 25pc on New York debut
Shares of Puxin, China’s third largest after-school education company, surged on its New York Stock Exchange debut on Friday, shrugging off concerns after another US-listed Chinese education company, TAL Education, was accused of inflating profit by a short seller.
The shares rose 25 per cent as of 11:12am US time to US$21.24, higher than the opening price of US$17 per share. About 7.2 million American Depositary Shares were floated on the bourse, raising more than US$120 million.
“We are aiming to double the company’s net revenue from last year to 2.5 billion yuan (US$388.3 million) this year,” Wang Peng, Puxin’s chief financial officer said by phone from New York, soon after ringing the opening bell to launch the start of trading.
“For the next three years we will focus on hundreds of Chinese cities across first tier to lower tier cities,” he said, adding that the company does not have any overseas acquisition plans as yet.
TAL Education has been accused by short seller Muddy Waters of inflating net profit by more than 40 per cent, causing its shares to plunge by nearly 10 per cent in New York on Wednesday. TAL extended its losing streak on Friday, losing another 4.4 per cent in early trading.
TAL said Muddy Waters’ allegations contained “numerous errors, unsupported speculation and malicious interpretations of events”.
Wang shrugged off concerns about the share performance of overseas listed Chinese education companies following the TAL incident, saying the company will not be daunted by the “short-term market buzz” that causes volatility in companies’ share prices. Instead, he believed there was still huge room for education companies to grow in China, as the top five players have so far only taken over around four per cent of the share.
The company said it plans to use about 70 per cent of the IPO proceeds for further acquisitions and the rest for developing its online learning platforms and increasing the brand’s awareness.
It is the 14th education-related company overall from China to list in the US, and the third this year. The combined market cap of all of these companies is around US$50 billion, with market leader TAL alone up 33 per cent so far this year and 126 per cent over the past year.
According to estimates by the consulting firm Deloitte, China’s education market is expected to be worth 2.9 trillion yuan (US$461 billion) by 2020.
“The flurry of Chinese education firms seeking listing in the US is a result of the large room for growth in this industry,” said Shen Meng, an executive director with investment bank Chanson & Co.
“However, the irregularities in operations and finances spotted in some Chinese companies have added to the uncertainty of their share performances,” adding that a China-US trade war could further put a lid on the upside of share prices of Chinese companies listed in the US.
Puxin was founded in 2014 by Sha Yunlong, who was with New Oriental Education & Technology Group, another New York-listed education service provider for 14 years.
It now has 397 learning centres in 35 cities across China, acquiring 48 targets over the past four years, which has allowed it to grow rapidly.
Riding on the back of the many aspiring Chinese “tiger moms and dads”, Puxin saw its total student enrolments increase 180.4 per cent from 454,945 in 2016 to around 1.3 million in 2017, while its net revenue increased by 192 per cent from 439.2 million yuan in 2016 to 1.28 billion yuan in 2017. Net losses, however, widened from 127.6 million yuan in 2016 to 397.2 million yuan in 2017.
