Financials Author: Yiran Xing Jun 21, 2022 11:47 PM (GMT+8)

Tencent's stake cut suggests edutech rally has become overdone

Tencent group

According to documents disclosed by the Hong Kong Stock Exchange (HKEX) on Monday, Tencent Holdings (Chinese:腾讯控股) sold 74.6 million shares in Koolearn Technology Holding Ltd (Chinese: 新东方在线) from June 15 to June 16. After this round of reductions, Tencent's shareholding ratio in the platform decreased from 9.04% to 1.58%, cashing out a total of HKD 719 million (USD 91.6 million).

Due to the Chinese government’s so-called “Double Reduction” policy introduced last year, the core private tutoring business of New Oriental Group has contracted greatly. In response to the business model crisis, Founder Yu Minhong proposed the firm’s selling of agricultural goods through livestreaming channels, founding “Oriental Selection” at the end of last year. Recently, it has become popular due to its unique bilingual product introductions.

By the close of business on June 20, Koolearn's stock had dropped by 32.08% in a single day. However, the cumulative increase in the company's share price since the beginning of this month still reached 358.92%.

In the face of an aggressive share price, some institutions have revised their ratings on Koolearn. China Merchants Securities (Chinese:招商证券) downgraded Koolearn to Neutral. The China Merchants Securities research report concluded that Koolearn's current valuation needs to correspond to an average daily GMV of nearly CNY 30 million and a P/E ratio of 35 times for the live selling business. However, this extrapolation assumption is too aggressive and consequently Koolearn is downgraded to Neutral.

Against this background, some foreign institutions have reduced their holdings at high levels, and Wind data shows that since June 14, institutions such as HSBC, Pacific Century Securities, Morgan Stanley and JP Morgan Chase have reduced their holdings of Koolearn shares one after another. However, at the same time, there were also Chinese institutions such as Futu Holdings Limited (Chinese:富途控股有限公司)  and Guotai Junan Securities (Chinese:国泰君安) who increased their holdings.