Students from China are flocking to Iowa’s universities in record numbers, the Associated Press recently reported. The article, although focused on only one state university system, reflects a national trend that has a growing number of Chinese students coming to the U.S. to study. China accounts for nearly a quarter of international students in U.S. schools. Education is highly valued in China, and many parents and students view a Western education as a major advantage in China’s increasingly competitive, globally connected job market.
To prepare their children to study abroad, many families in China’s growing middle and upper classes are sending them to bilingual schools such as those run by China Bilingual Technology & Education Group Inc. (OTC BB: CBLY), an operator of private K-12 boarding schools in central China. English language and cultural skills are a core focus of CBLY’s curriculum, and its graduates emerge well-prepared to study abroad or in China’s top universities. The Company’s schools regularly rank among the top schools in their respective regions for national college entrance exam scores and college entrance rates. CBLY’s 2011 graduating class had a 99% college acceptance rate, nearly four times the national average, with nearly half of the new graduates accepted to an overseas university or a top-tier Chinese school.
This outstanding track record has students practically lining up to get into CBLY’s schools. Nearly 9,600 students competed for 1,000 available spots last year. The demand for CBLY’s services is extremely strong—and now, the Company has plenty of room to capitalize on it. In September, CBLY acquired a K-12 boarding school that effectively doubles the Company’s enrollment capacity to 20,000 students. Only about 3,000 students currently attend the recently acquired Shanxi South Campus (formerly Shanxi Rising School), creating a huge organic growth opportunity for CBLY. The Company expects to bring its schools to full capacity over the next 18 to 30 months.
CBLY recently changed its fiscal year end from December 31 to August 31 to better reflect the school year, which typically runs from September 1 to August 31. The change in fiscal year end also enables the Company to incorporate a full year of operational results for fiscal year 2012 of the newly acquired school. Given the strong growth in enrollment rates expected over the next two years, it’s only a matter of time until the market becomes aware of CBLY.
Trading at a steep discount to its peers, CBLY is poised to benefit from the rebound in select China small-cap stocks following the massive sell-off that rocked the sector earlier this year. As we previously discussed, the Company’s straightforward business model is easy for investors to understand, as are the growth drivers in the China education space. CBLY has 25% historical top- and bottom-line growth and operates with an impressive 50% net margin rate (the Company is exempt from paying corporate income taxes).
You can learn more about China Bilingual’s academic model and facilities by watching our video tour of the Company’s Shanxi Modern Bilingual School, which includes interviews with CBLY’s management, faculty and students. Our latest research update on CBLY details why the Company is a small-cap stock that could generate large returns in the year ahead.
Disclosure: The subject security is a client of RedChip Companies, Inc. RedChip Companies, Inc., employees and affiliates may have positions and affect transactions in the securities or options of the issuers mentioned herein. For full financial disclosures for all RedChip clients, please visit http://www.redchip.com/disclosures.asp?src=rcv.