A recent New York Times article spotlighted the growing popularity of college consulting companies in China, which coach Chinese students through the college application process to boost the students’ likelihood of getting into a prestigious U.S. university. For a fee of several thousand dollars, these agencies critique students’ college admission essays, suggest extracurricular activities that would be attractive to American universities’ admission boards, and even train students for U.S. visa interviews.
Although paying such a steep price for these services may seem extreme to those in the U.S., the popularity of college consulting firms in China reflects the importance of education, specifically Western education, in Chinese culture. China sends more students to U.S. universities than any other country, and gaining admission to an Ivy League school or equivalent top-tier Chinese university can set a student on the path to lifetime success.
Due to China’s one-child policy, parents are strongly motivated to provide their child with the best education they can afford, even starting at the kindergarten level. Education is China’s third largest consumer spending category behind food and housing, accounting for 11% of consumer spending. In China, approximately 7% of disposable income is spent on education, compared to just 2% in the United States.
High-quality private schools are considered one of the best avenues to U.S. university admission. One company that has been tremendously successful in preparing its graduates to study abroad is China Bilingual Technology & Education Group Inc. (OTC BB: CBLY), an education company that currently owns and operates two high-quality K-12 private boarding schools in Shanxi and Sichuan provinces.
CBLY’s educational model, focused on teaching English language and cultural skills to its Chinese students, has been honed over 16 years of operating history. The model has proven highly successful, both for the school itself and more importantly for the tens of thousands of students who have attended over the years. For the 2010-11 school year, 99% of CBLY’s graduates were accepted into Tier 3 Chinese universities or better, four times the national average, and approximately 42% were accepted to China’s equivalent of Ivy League universities or schools outside of China.
Dave Gentry, President of RedChip Companies, recently visited CBLY’s Shanxi Modern Bilingual School. During his visit, Mr. Gentry toured the campus and interviewed Michael Toups, the Company’s Chief Financial Officer; Pan Mingxiao, Chief Operating Officer; and Rick Ren, Vice President. We are pleased to provide investors with a video of this visit; click here to view.
CBLY’s bilingual academic model has proven so successful that the Company is now taking steps to expand its teaching methods into other schools. Management is currently negotiating to acquire a private K-12 boarding school that would approximately double the Company’s total enrollment capacity to about 20,000 students. CBLY expects to sign a contract by June 30, 2011 and complete the acquisition by the start of the 2011-2012 school year in August. Pictures of the school are below (click on the thumbnails to enlarge):
Thanks to being exempt from corporate income taxes, CBLY is able to operate with an impressive 50% net margin rate. Additionally, the Company has a long track record of consistent revenue and earnings growth, and no long-term debt.
Currently trading at a stock price of $3 per share and a P/E of 7, the Company’s stock is dramatically undervalued compared to industry peers such as ChinaCast Education Corp. (NASDAQ: CAST), New Oriental Education & Technology (NYSE: EDU), and ChinaEdu Corp. (NASDAQ: CEDU). The median P/E of these U.S.-listed China education stocks is 32, placing CBLY at an 80% discount to its peer group. This means investors buying today stand to reap gains of greater than 400% should CBLY trade at similar multiples to its peers.
With the firsthand view of CBLY’s operations and the pending doubling of its student enrollment through its next school acquisition, investors can be confident they have a winner on their hands that makes the grade and passes the credibility test. Don’t miss out on this opportunity.
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.