Ambow Cashing In on China Education Boom

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I am very bullish on the domestic growth prospects for China over the long term, and one reason why is because of the strong emphasis that Chinese culture places on education. This emphasis, combined with extremely favorable demographics, makes the business of education a great place to look for outstanding companies.

Take New Oriental Education & Tech. Group Inc (NYSE: EDU), up +38% year-to-date, compared with about +10% gains for the Dow Jones since January 1. And right now, I’m seeing even more opportunity in another booming segment of the Chinese education sector — tutoring and career services — by way of Ambow Education (NYSE: AMBO).

Ambow is China’s leading national provider of educational and career enhancement services. The company’s business caters to two specific aspects of the Chinese education market. The first is the demand for tutoring from students striving to be admitted into top secondary and post-secondary schools. The second is the demand on the part of graduates of those schools to land better, more career-advancing jobs.

Ambow’s career enhancement services are aimed at university, college and community college students as well as recent graduates of these institutions. The company’s programs are, appropriately enough, called “Better Jobs.” This instruction provides both students and recent graduates with real-world professional skills, as well as soft skills such as leadership and teamwork. Basically, the company teaches people what they don’t learn in the college environment.

Interestingly, while the company postponed its IPO in 2008, it didn’t stop making financing deals. On the contrary, the company hooked up with several large venture capital funds and raised nearly $100 million. One of Ambow’s backers is the venture capital arm of Cisco Systems (NASDAQ: CSCO), and that deal has in part enabled Ambow to build relations with the likes of Intel (NASDAQ: INTC), McGraw-Hill (NYSE: MHP) and other big corporate names. In some cities, these companies actually offer Ambow’s students onsite internship opportunities.

Not to mention that the joint bookrunners for the company’s initial offering was J.P. Morgan and Goldman Sachs. I expect that we will see analysts quickly begin to cover this company and we’ll begin to see increased investor attention in the near future.

In addition, while the story surrounding Ambow is certainly compelling, the even better news can be found in the numbers. Want proof that Ambow is a true growth story? How about its revenues jumping from 318.9 million yuan in 2007 to 902.0 million yuan in 2009? That’s a near-tripling of revenues in over two years, at a compounded annual growth rate of 68%!

Plus, the company’s net income grew from 34.2 million yuan in 2007 to 138.0 million yuan in 2009 — an annual growth rate of a whopping 101% in two years. Operating income also surged, from 56 million yuan to 149 million yuan.

AMBO shares currently trade at a P/E ratio of approximately 28. And while this may seem high, it’s actually relatively low when compared to top competitor, New Oriental Education, which currently trades northwards of 50 times earnings. Considering EDU stock performance so far in 2010, that’s pretty impressive.

As of this writing, Robert Hsu was recommending AMBO in his Asia Edge newsletter.

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