On September 17, 2020, Moody’s Investor Services stated in a new report that despite the impact of COVID-19, the increasing demand for quality education will continue to drive the development of primary and secondary education service providers in the next three years. Specifically, education service providers with a certain scale, diversified geographical distribution and good past operating records will benefit from this trend.
Moody’s Assistant Vice President/Analyst Xiong Yangli said: “Although the pandemic will slow the industry’s revenue growth in the 2021 academic year, driven by the potential demand for quality education, the industry’s revenue growth will resume in the next few years, especially in an emerging market with a large population of school-age children and rising disposable income of the middle class.”
“In addition, due to the different reopening times of schools and learning centers in different cities and countries, in this very fragmented industry, the geographical diversification of private education service providers will become the main advantage supporting their credit quality.” Xiong Yangli added.
Moody’s predicts that the online-offline hybrid learning model will become a continuously growing part of the services of private primary and secondary education providers, and learning centers will further shift to pure online services when necessary. Companies that have invested in online platforms and shown the ability to provide online learning will be able to take advantage of this growing trend.
Because of its business model, private education providers rated by Moody’s are able to charge tuition in advance to a large extent, thereby minimizing the need for operating funds during the school year. In addition, the industry’s revenue predictability and historical growth rate are relatively high, so the cash flow generation ability is strong.
“Nevertheless, companies will have different capital intensities, and face different operational and financial challenges, depending on their operating model and shareholding structure.” Moody’s vice president/senior analyst, another author of the report Lucia Lopez Added.