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.

The short sellers who stoked the rampant fear amongst investors, after shaking many of these stocks down to price-to-earnings ratios of one or less, appear to have moved on to bigger and better targets.

While it will take time for the broader space to fully recover, select China small-cap stocks, those that investors have fully vetted and have strong confidence in, have begun to rebound sharply. One example of this is the recent 70% surge in Longwei Petroleum (NYSE Amex: LPH), a fuel distributor in China with strong margins that sells fuel at a profit to industrial customers and gas stations. Coming off sub-dollar prices, LPH closed last week at an impressive $1.53 per share. To learn more about LPH, check out this exclusive video tour of its facilities.

With the growing dearth of short seller hit pieces, the true fundamentals of companies like LPH are now being weighed by investors. One reason we believe LPH has rebounded so sharply, in such a short time frame, is the fact that it has a simple business model; one that is both easy to understand and easy to verify. This has given investors the needed confidence in the stock, and as the deluge of selling has finally abated, the buyers have jumped back in full force.

Another China small-cap with a simple business model that is both easy to understand and easy to verify is China Bilingual Technology & Education Group (OTCBB: CBLY). Founded in 1998, CBLY is an education company that owns and operates high-quality, K-12 private boarding schools in China. Unlike a complicated biotech or difficult-to-understand technology company, education is something most investors can understand, and CBLY’s students, which produce the Company’s revenue via tuition, room and board, are something that is easily verifiable in the due diligence process. The Company currently operates three physical schools encompassing the kindergarten, elementary, middle and high school levels with approximately 12,600 students and 2,000 faculty and staff.

Earlier this year, Dave Gentry, president of RedChip, conducted a video tour of CBLY’s Taiyuan City campus, Shanxi Bilingual. In the video, aside from the campus tour, investors can see and hear from students, faculty and staff.

Since the recording of the video tour of Shanxi Bilingual, CBLY has closed the acquisition of an even larger school campus, Shanxi Rising. Founded in 2002, the newly acquired school is a K-12 private boarding school with approximately 3,000 students currently enrolled and a total capacity for approximately 10,000 students. The campus, located in Jinzhong City, near the Company’s headquarters in Taiyuan City, spans 82 acres and is comprised of over 2.3 million square feet of facilities, including 18 dormitories, academic classrooms, gymnasium, theater, natatorium, cafeteria, and other administrative and academic buildings. Following are pictures of this sprawling state-of-the-art campus:

The growth drivers in the China education space are also easy for investors to understand. Education is the third largest consumer spending category in China, behind only food and housing. China’s well-publicized one-child policy, wherein each child has two parents and four grandparents fully invested in the child’s future success, is fueling this trend. Additionally, the desire to help their children compete in the global business community drives parents to seek out schools like CBLY, where English language and cultural skills are a core part of the curriculum.

The broad understanding of education and the ease with which investors can verify the underlying businesses in the space are two reasons we believe the industry never succumbed to the blatant short-selling attacks that affected the broader China small-cap space. While valuations were negatively impacted, they never saw the ultra-low price-to-earnings ratios we’ve seen in other China small-caps. Companies such New Oriental Education & Technology (NYSE: EDU), ChinaEdu (NASDAQ: CEDU), and ChinaCast Education (NASDAQ: CAST) have maintained solid double digit P/E’s throughout the entire China sell-off. In fact, New Oriental today trades for 34x trailing earnings.

With a historical 25% top- and bottom-line CAGR and room for substantial organic growth with the recently acquired school, we believe it’s only a matter of time before CBLY’s stock begins a strong rebound. Moreover, thanks to its exemption from paying taxes, CBLY is able to operate at a 50% net margin. At a P/E of only 3x trailing earnings, CBLY is trading for a mere fraction of the valuation of its U.S.-listed China peers. Investors have the chance to reap exponential returns from these prices as the stock begins to recover on its way to a more realistic and fair valuation.

Be sure to tune into CBLY’s presentation this week at the RedChip 2011 Small-Cap New York Conference. You can view the webcast live on Wednesday, November 9th at 4:30 p.m. EST by clicking this link, or check back for an archived version a few days later.

Disclosure: The subject securities are clients 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.

Founded in 2002, Shanxi Rising has approximately 3,000 students currently enrolled and a total capacity for roughly 10,000 students. The Shanxi Rising campus spans 82 acres and is comprised of over 2.3 million square feet of facilities, including 18 dormitories, academic classrooms, gymnasium, theater, natatorium, cafeteria, and other administrative and academic buildings. Pictures of the school’s sprawling campus can be viewed here.

With the acquisition of Shanxi Rising, CBLY will have the opportunity to overlay its successful academic model on the new school and take advantage of the school’s underutilized capacity.

CBLY’s curriculum, which emphasizes the mastery of English language and cultural skills for K-12 students, ties directly into one of China’s major educational trends. China is in the midst of a huge nationwide push to learn English, widely considered the international language of business, which is driving parents to seek out prestigious private schools, such as those operated by CBLY, to give their children an edge in the nation’s increasingly competitive job market.

The Company’s schools regularly rank among the top schools in their respective regions for college entrance rates and national college entrance exam scores. CBLY’s 2011 graduating class had a 99% college acceptance rate—nearly four times the national average. This reputation for success creates a long line of willing student applicants each year. For the 2010-11 academic school year, CBLY was only able to accept 16% of the 9,600 new student applicants to its two schools, reaching its total enrollment capacity in the process.

While the Shanxi Rising acquisition just came at the start of the 2011-12 school year, we believe the Company’s reputation for success is well known in the region and will drive rapid enrollment growth moving forward.

Investors can learn more about CBLY’s operations by taking a video tour of the Company’s Shanxi Modern Bilingual School and visiting the Company’s new corporate website, which launched in July. 

CBLY has historically achieved 50% net margins and average annual revenue and net income growth of around 25%. Yet, astonishingly, CBLY’s stock currently trades well under $2 at a P/E of 2.8. Comparable Chinese educational companies such as New Oriental Education (NYSE: EDU) and China Cast Education (NASDAQ: CAST) trade at much higher multiples, some in excess of 50x earnings. The Company’s low valuation, strong margins, and capacity-doubling acquisition make CBLY a strong bargain and a great way to invest in China’s push to learn English.

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.

The thirst to learn English isn’t limited to students in China’s western provinces. One company that’s capitalizing on the demand for English language skills is China Bilingual Technology & Education Group Inc. (OTC BB: CBLY). Through its two private schools in central China, CBLY provides K-12 students with a high-quality education emphasizing the mastery of English language and cultural skills. Its two schools (the first was established in 1998, the second in 2002) currently serve about 9,500 students.

CBLY is recognized for its skilled faculty and the strong academic performance of its students. The schools regularly rank among the top schools in their respective regions for college entrance rates and national college entrance exam scores. CBLY’s 2011 graduating class had a 99% college acceptance rate—nearly four times the national average. Many of CBLY’s graduates go on to study abroad in the U.S., Europe or Australia. Results like these carry tremendous weight in China, where education accounts for 11% of consumer spending compared to only 2% in the U.S. Applications to CBLY’s schools doubled from approximately 4,800 for the 2009-2010 school year to approximately 9,600 for the 2010-2011 school year.

Investors can check out CBLY’s operations and hear from its management team by taking a video tour of the Company’s Shanxi Modern Bilingual School. CBLY is currently negotiating to acquire a private K-12 boarding school that would over time double its enrollment capacity to 20,000 students. Pictures of the school can be viewed here.

CBLY has historically achieved 50% net margins and average annual revenue and net income growth of around 25%. Yet, astonishingly, CBLY’s stock currently trades under $2 at a P/E of 2.6. Comparable Chinese educational companies such as New Oriental Education (NYSE: EDU) and China Cast Education (NASDAQ: CAST) trade at much higher multiples, some in excess of 50x earnings, making CBLY a strong bargain and a great way to invest in China’s push to learn English.

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.

RedChip Research just announced that it is initiating research coverage of China Bilingual Technology & Education Group (OTC BB: CBLY), a highly profitable operator of private K-12 boarding schools in China’s Shanxi and Sichuan provinces. The Company’s investment highlights include:

• Trailing P/E of 8.3x in an industry that trades at an average P/E of 20x
• 0% tax rate due to exemption from corporate income tax as a private education provider
• 51.9% operating margin (TTM)
• Cash balance of $14.1 million (MRQ)
• High cash flow with minimal receivables risk due to prepayment business model

The initial report, available here, provides a comprehensive look at China Bilingual’s business and industry environment and addresses key due diligence areas for potential investors to consider, such as:

• Why China’s “one-child policy” is driving growth in high-end private education
• Why the strong emphasis on the national college entrance exam in China creates growth opportunities for K-12 education providers
• Why CBLY’s schools had a 16% student acceptance rate this academic year
• Why CBLY’s financial condition puts it in an ideal position to expand via acquisitions

Other aspects of China Bilingual’s business addressed in the report include:

• Detailed description of the company’s business model, facilities and operations
• Opportunities for business diversification outside of traditional schools
• Key factors that allow CBLY to consistently maintain a net margin near 50%
• Competitive landscape and key factors driving the education industry in China
• Profiles of the company’s peers and competitors
• Financial analysis and outlook
• Valuation using both discounted cash flow and relative valuation models

To read a free copy of the full initial report on China Bilingual Technology & Education Group in PDF format, please click HERE.

China Bilingual CFO Michael Toups was recently featured in an extended interview on New York-based radio station WMCA. A recording of the interview is available HERE.

To watch a video clip about China Bilingual’s business and the tremendous market opportunity in China’s private education industry, click HERE.

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.

That company is China Bilingual Technology & Education Group, Inc. (OTC BB: CBLY), which operates two private schools encompassing the kindergarten, middle, and high school levels.

CBLY achieved the following notable financial highlights year-over-year for the first nine months of FY10:

• 54.0% Net Margin
• 20% Revenue Growth
• 33% Net Income Growth

*Because it operates in an industry that is highly favored by the central government, China Bilingual does not have to pay corporate income tax, which enhances its bottom line.

Click here to watch an interview with China Bilingual’s CFO, Mike Toups.

China has entered the global community and clearly understands the importance of making sure all of its students are well-educated and can speak English. History has shown that China is skilled at identifying its weaknesses and finding solutions to them. This talent for self-correction has led China to become the fastest-growing economy in the world. As a result, a growing number of Chinese are training their children bilingually from kindergarten through high school.

Much like the West, the Chinese highly correlate education with success. Education is strongly emphasized as a means to lifelong prosperity, and China’s growing middle class has the discretionary income to enroll its children in exclusive private schools. With China’s one-child policy Chinese families are able to invest substantially towards their child’s future. Numerous households have four grandparents and two parents willing to invest in a child’s schooling from grade school through high school.

Education is China’s third-largest consumer spending category behind food and housing, accounting for 11% of consumer spending. The central government is projected to spend 4% of GDP on education by 2012, up from 3.3% in 2008. China’s cultural emphasis on education appears to be working: Bloomberg recently reported that students in Shanghai ranked first among peers from 34 countries on an international test that covered math, science and reading. The U.S. ranked 25th.

China Bilingual’s two schools provide students with a comprehensive education focusing on fluency in Mandarin and English. The Company’s Sichuan Guang’an Experimental High School regularly ranks among the top schools in its region for college entrance rates and national college entrance exam scores. Approximately 9,000 students are currently enrolled in China Bilingual schools. The Company plans to expand its proven business model and teaching methods into new schools and branch out into training services and international exchange programs.

Comparable U.S.-listed Chinese peers such as ChinaEdu Corp. (NasdaqGM: CEDU), China Distance Education Holdings Ltd. (NYSE Amex: DL), and ChinaCast Education Corporation (NasdaqGS: CAST) trade at exceptionally high earnings multiples, some in excess of P/E 50x. CBLY could trade at a 25-30x P/E, which would give it a price per share in the $10.50-$12.60 range, a potential return of roughly 216%.

China Bilingual is an undervalued company operating in one of the hottest sectors in the world’s fastest-growing economy. The Company’s successful operating history, strong reputation, and high margins also bode well for its future, making China Bilingual an excellent early-stage investment 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.

CECX provides comprehensive training courses to Chinese entrepreneurs and business executives in addition to organizing guest lecture series featuring internationally known speakers such as Mark Hansen of Chicken Soup for the Soul, top U.S. negotiator Roger Dawson, sales executive Joe Girard, and leadership guru John C. Maxwell.

In a forward-thinking move, CECX recently participated in the 2010 Beyond the Limit Superstar Concert held at Shanghai Stadium on November 6, 2010. This event attracted over 50,000 people and included nationally known pop artists. Rocky delivered motivational speeches and even performed on the piano.

Photos from the Beyond the Limit Superstar Concert can be seen at CECX’s website by clicking HERE (English translation HERE).

This event, the first of its kind, will be held annually in China and is a unique entertainment event for attendees and a strategic marketing opportunity for CECX. It allows the Company to enhance its public image and attract new clients for its executive training courses and “World Masters” guest lecturer events, which have brought international speakers, including Colin Powell and John Gray, to China.

Following up on the success of this exclusive hybrid concert/motivational speech event, a movie dramatizing the life of CECX’s founder and CEO, Rocky Liang, titled The Next Magic, will be released in summer 2011 across Asia. The film documents the hardships and struggles of Rocky’s past, such as his hypochondriac condition and two attempts at suicide. Premiere events for the full-length feature film are being scheduled for 10 cities across China, Japan, and possibly other Asian countries.

China Executive Education’s sales grew 76.6% year-over-year to $6.5 million in the recently reported third quarter, reflecting strong demand for both the Company’s proprietary training courses and featured lectures. Net income for the quarter declined from $1.5 million to $1.2 million on strong investment by the Company into its sales and marketing efforts, which should have long-term financial benefits.

Rocky Liang’s ambitious goal-setting and enthusiasm have already created tremendous success for himself and for CECX, and the recent concert and upcoming movie, two of his many personal goals, will both benefit the Company’s image and reputation. What will Rocky accomplish next?

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

According to International Data Corporation, total spending in China’s education market was $236.3 billion in 2008 and is projected to grow to roughly $604 billion by 2013.

In 1999, the PRC State Council approved the Ministry of Education’s Plan of Revitalizing Education in the 21 Century. The Plan set a target for 15% of China’s college-aged population to be enrolled in higher education (known as the tertiary enrollment ratio) by 2010. The Plan clearly had its desired effect, as higher education enrollment increased 50% in the first year. New enrollments in higher education were 1.1 million in 2008 and increased by roughly half a million students every year through 2006, when they hit 5.5 million. As a result, China was able to far surpass its goal, raising its tertiary student enrollment ratio from under 10% to 23% in only seven years.

The boom in China’s higher education and education industry at large continues to be driven by the combined effects of four primary forces:

1.      The cultural emphasis on education as the gateway to success in life, which is much more firmly rooted than in Western culture.

2.      Rising living standards across China, especially in poorer rural areas where more children now have the opportunity to attend school.

3.      China’s one-child policy, which has resulted in millions of families with two parents and four grandparents who have the resources to invest exclusively in the future of one child.

4.      The PRC government’s advocacy of education as the means to a more skilled and productive workforce.

All education companies in China are likely to feel the positive effects of the market’s explosive growth. As JFK put it, “a rising tide lifts all the boats.” High demand for education providers and attractive financial market conditions have led to a flurry of Chinese education IPOs over the past few months, including companies like TAL Education Group (NYSE: XRS), Global Education & Technology Group (NasdaqGS: GEDU) and Ambow Education (NYSE: AMBO).

Competition to get into a respected college or university is fierce and begins at the primary and secondary school levels. As a result, one of the market niches best situated to take advantage of both rising living standards and Chinese families’ near-fanatical emphasis on education is high-end private boarding schools. This is exactly the niche that China Bilingual Technology & Education Group Ltd. (OTCBB: CBLY) operates in through its two private boarding schools, which focus on teaching English language skills and consistently turn out some of the highest-performing graduates in their respective regions.

Educational quality is one of China Bilingual’s strongest competitive advantages. Its Shanxi Modern Bilingual School has developed an impressive track record since its inception in 1999. It has grown its enrollment numbers from 536 students in 1999, to 1360 the following year, to more than 6,000 students and 140 classes at present, making it the largest private school in Shanxi Province. The school and its students have received numerous awards at the local and provincial levels, and its high school students perform exceptionally well every year on the crucial national college entrance exam.

Sichuan Guang’an Experimental High School prides itself on its expert administration, excellent teaching team, small class sizes, bilingual education, and modern learning environment. It was founded in 2002 as Huaying City’s first large-scale private school. In its first year of operations, 90.5% of its students passed the college entrance exam, putting it in first place among high schools in the Guang’an region. In addition, the highest exam scores in Chinese, mathematics, English, and integrated science all came from students at the school. The school has garnered many additional honors since then, including the highest college entrance rate in Huaying City in 2009.

Richard Levin, president of Yale University, recently remarked that “the increase in China’s postsecondary enrollment since the turn of the millennium exceeds the total postsecondary enrollment in the United States.” With more and more Chinese competing for acceptance into higher education facilities, the demand for high-quality primary and secondary schooling providers will grow at a strongly correlated rate, providing attractive investment opportunities for companies like China Bilingual.

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.

In the United States, there is no shortage of for-profit choices when it comes to higher education. Private universities, vocational and specialized training programs offer a broad variety of programs from technical, business, and the liberal arts. Companies like Devry Inc. (NYSE: DV), which has been in the private education business for nearly 75 years, and healthy competition from companies like Apollo (NASDAQ: APOL), Educational Management Corp. (NASDAQ: EDMC) and ITT (NYSE: ESI) have broadened awareness of the sector among investors. Each one of these companies operate profitably, have experienced impressive growth rates and all claim high placement results as they target what employers are seeking and tailor their programs as they go.

As the private education market in the U.S. matures, becoming more crowded and competitive, the market in China is only starting to develop. Established Chinese companies like New Oriental Education Technology Group (NYSE: EDU) and ChinaCast Education Corp. (NASDAQ: CAST) and newly formed players like HQ Global Education Inc. (HQGE.OB) and China Bilingual Technology & Education Group Inc. (CBLY.OB) are benefitting from the demand for higher education and the desire to earn better wages.

These companies vary in both their product lines and delivery systems, with some offering diversified product lineups and others targeting specific categories:

• Children: Younger consumers from grade school to high school with a variety of programs including traditional education, online e-learning and targeted programs.
• Vocational: As China develops as a consuming nation, and income and demand for foreign products rises, China remains one of the largest exporters of manufactured goods. Their relatively cheap labor pool has attracted many companies to build facilities in China to take advantage of the lower costs. Vocational training schools have sprouted up near both the source of the labor pools and their potential employers. These companies have the advantage of working hand-in-hand with employers to tailor their training programs to fit employers’ needs and claim placement rates as high as 100%.
• Professional/Executive: As China becomes a larger force in the global economy, its professional and executive workforce is expanding as well. Companies are now offering programs geared specifically to advancing business skill sets including sales, marketing, negotiation and public speaking courses designed for and targeted to both seasoned and up-and-coming professionals.
• Language: There is a higher interest for Chinese citizens to expand their language skills to be more competitive. Companies are taking note of this and delivering programs to teach language skills and prepare and assist students in their quest to study abroad.

Here are six publicly held Chinese companies, each with their own history and strategy:

HQ Global Education Inc. (HQGE.OB): While incorporated a little over two years ago, HQGE has reportedly enrolled 85,000 students since its inception in 1994. The company provides vocational skills training and education to students in China and claims a 100% placement rate for its graduates due to the company’s targeted approach. HQGE locates its schools near sources of labor pools and their potential employers. They provide 60 programs, each ranging from 1-4 years, in 17 categories.   The HQ name carries some brand recognition, which the company plans to leverage off of as they expand their schools, enrollments and educational programs. This branding surrounds HQGE’s “Order-oriented Educational Mode,” which is essentially a form of target marketing to its customers, who in this case are both students and future employers. HQGE’s most recent reported financial results seem to coincide with its student growth trends, which are in the 17-18% range, with top-line growth and net income growing by around 20% in year-over-year nine-month reporting periods. This type of growth rate in any industry would be envied.

China Executive Education Corp. (CECX.OB):   CECX has a more niche defined target of executive education. The company targets its training and educational services to the successful and up-and-coming professionals who want to advance to new levels in what most U.S. business schools strive to provide beyond their traditional classroom topics. CECX offers proprietary courses in modern business practices, including but not limited to: public speaking, sales and marketing, negotiation and people skills. CECX is a relatively new company (officially formed in 2009) but has reportedly served over 2,000 students. While in its early stages and yet to survive a market cycle, its business model is nothing short of unique and specifically targeted at well-heeled customers. The company offers a much higher priced service to customers who can afford to pay up front to work with what CECX considers to be leaders in their field. This business model is similar to what some Executive MBA programs offer in the U.S. for working professionals, where the educational staff consists of working professionals alongside tenured professors. As China develops its professional leaders, there is a demand and desire for those who have worked primarily in China to learn advanced skill sets with a global focus.

China Bilingual Technology & Education Group Inc. (CBLY.OB): Newly formed from the acquisition of two companies that have been providing private education since the late 1990s, CBLY plans to expand its grade- and high school-level programs with a bilingual emphasis. The company plans to extend what it considers “high profile and high standard” state-of-the-art facilities with a high teacher-to-student ratio. China Bilingual’s experience and history of modern learning facilities have already proven effective, and the company reports college enrollment admission rates at 90%. China Bilingual has also won numerous awards for its results. While this newly formed company will need to prove itself as a publicly held company, with these achievements China Bilingual may be a strong competitor with a focus on high standards of education.

ChinaCast Education Corp. (NASDAQ: CAST):  ChinaCast was founded in 1999 and employs approximately 2,200 employees in various locations across China and Hong Kong. The company delivers diploma and secondary degree programs at the university level. Its business is divided into both the traditional classroom settings on college campuses and online e-learning programs. Its on-site accredited programs are located at the Foreign Trade and Business College in Chongqing and the Lijiang College in Guangxi Normal University. Typical of any state or private university in the U.S., ChinaCast offers programs for language studies, advertising, business, hospitality, economics, computers, arts and music, IT and law.  With recent advances in computer technology and easy access to the Internet, ChinaCast has expanded its e-learning programs to enhance its product line beyond the traditional degree-based educational programs. Because of the reach of the Internet, they are able to extend these services to grade schools from k-12, local and national governments and some corporate facilities.

Similar to other companies in this industry, ChinaCast is experiencing what would be considered high growth rates in top- and bottom-line growth. Some of this is from organic expansion and some through its strategic acquisitions like that of LJC in late 2009, which is projected to be accretive. Like any company in a growth stage, growing a business comes at a cost as top-line revenues grew last quarter above 40% while operating and net income grew at about half that pace but were still impressive. If this industry, like most at this stage, becomes a landscape of M&A and acquisitions, ChinaCast has one of the stronger balance sheets with significant cash on hand and has maintained impressive profit margins through a global recessionary period. 

New Oriental Education Technology Group (NYSE: EDU):  Originally founded in 1993, EDU is one of the longer-standing leaders in this field and cemented a strong foundation early in the industry’s cycle.  EDU trades on the NYSE with a market cap of $3.4B and has been delivering impressive results to shareholders since it began trading. At over $100 per share and a P/E of around 50x, its success has been well recognized by investors as a company with a strong foothold in the education space. Like some of the other companies in this arena, EDU offers a diversified delivery system but focuses on language-based educational products consisting of multiple language courses, including English, Japanese, Spanish, French and Korean, to name a few. The company assists its students in preparing for admissions and assessment testing to help them move ahead of their peers. EDU delivers its products and services though primary and secondary schools in multiple formats and delivery systems including online e-learning, books, periodicals and CD-ROMs. In addition to its core business, EDU also offers consulting services to students seeking to enter other learning institutions, providing guidance on applications and the admission process for local and overseas institutions.

EDU has continued to provide shareholders with impressive top- and bottom-line growth rates and deliver profit margins that any company would be proud to have. The recognition of these stellar growth and margin rates has not gone unnoticed by the investing community and is reflected in the strong demand for their shares. While there are at least nine analysts covering the stock with positive ratings, there is no shortage of commentary on why this stock needs to continue to deliver similar results to maintain the expectations and the valuation. EDU could be considered a model for newcomers to the industry who are also taking advantage of a high-growth business.

China Education Alliance (NYSE: CEU):   One of the larger companies in the private educational landscape, China Education Alliance, Inc., generates over $30M in revenue, operates profitably on a net basis and trades on the NYSE with a market cap of approximately $130M. This is impressive for a company that was originally founded less than 7 years ago.  While operating in the private educational sector, their services span all age groups and educational areas from elementary to higher education and both vocational and professional areas. As with others in this space, CEU combines e-learning with on-site delivery. In addition to teaching, CEU provides product lines of study materials in print and audit formats and traditional and non-traditional testing services. One of its most profitable divisions is marketed under the Famed Instructors Test Paper Store, in which the company maintains and delivers a database of over 350,000 courses, test papers, study materials and exams. CEU has developed a diversified delivery service that includes networks of websites, on-site, magazine and newspaper outlets. There seems to have been a significant amount of planning and development since their inception to be able to be a sort of one-stop shopping center of education of all sorts.

Similar to other private educational companies in China, CEU is in a rapid growth phase. Over the recent six-month period ending June 30, 2010, CEU experienced revenue and net income growth rates at or above 20% with the largest growth in the company’s training center and online delivery systems, where its margins are higher. Because of dilution from an almost 50% increase in outstanding shares, their EPS increased at about half of their revenue and net income growth rates, yet was still impressive. From a forward-looking capital picture, CEU has maintained a healthy balance sheet with approximately $75M in cash, has no long-term debt on its books and has increased shareholders’ equity over the last 12 months. CEU trades approximately 100k shares on the NYSE each day, trading at a relatively low multiple to its peers and the general market.

While each of these companies is experiencing very impressive growth rates, the business of education in China is competitive and reputation is important.  As with any industry in rapid growth stages, companies must choose at some point to compete on price or product differentiation. Some of these companies have chosen to target specific areas of the market while others are choosing a diversified product line. For now both the established and newly formed companies are delivering results that shareholders are looking for and profit margins any company would die for.  For those private education companies in China that make the right choices, remain flexible as the market changes and capitalize on controlling costs as they grow, there could be a bright future 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.

After massive stimulus spending and accelerating GDP growth through 2009, the economic community is waiting to see whether China’s government continues to encourage rapid growth or takes measures to cool the economy. The World Bank forecasts a moderate scenario of 9.5% GDP growth for 2010, which falls roughly in line with most estimates. It projects 8.5% growth in 2011, and longer term its “growth accounting exercise suggests that potential GDP gradually declines to 7 percent in 2016-20.”

“The expected deceleration of potential growth also places a premium on policies that can increase sustained productivity growth, including via more reallocation of labor, enhanced human capital, and innovation,” says the report. As it becomes more challenging to continue delivering high rates of economic expansion over the next decade, the Chinese government is expected to enact policies favoring companies that can boost human capital (labor) productivity, such as firms in the professional education and training industries. For example, one promising company that would directly benefit from this anticipated trend is China Executive Education, Inc. (CECX), a provider of executive training programs and business skills seminars in China.

Analysts in the report noted that “recent adjustments in domestic fuel and water prices, the pilot with an ad valorem resource tax on oil and gas in Xinjiang, and plans to gradually end subsidized electricity prices for energy-intensive industries, are steps in the right direction” as China’s government begins to ease measures that give Chinese companies an unfair benefit in global competition. While policies intended to remove protectionist subsidies and underpricing could have an adverse short-term effect on some weaker firms, the price adjustments and recent yuan revaluation are positive long-term indicators since they signal Chinese firms’ increasing ability to compete in a free global market.

According to the report, the short-term outlook for firms in various consumer goods industries is also favorable: “Household consumption growth has remained solid, in line with a favorable labor market. The recovery of consumer confidence and continued consumer spending growth since early 2009 are in large part fueled by a strong labor market.” With a recent boost in car sales, home appliances, and other consumer durables, companies like China Electric Motor, Inc. (CELM), a manufacturer of micro motors for use in car components, household appliances, and digital equipment, should continue to see strong demand for their products.

Not only that, but the market for advertising is strong and typically very cyclical, following trends in the consumer goods sector. Companies such as China New Media Corp. (CMDI), which operates large outdoor advertising networks in some of China’s largest cities, stand to profit in the current environment.

The outlook provided by the World Bank seems to be one of moderating but still strong growth in China’s economy in the coming years, with a stable monetary policy forecast. This seems like the natural inclination as China matures into a fully developed nation.  As the update highlights, economic conditions have created abundant opportunities for Chinese companies to expand rapidly and will continue to do so for years to come.

Disclosure: The securities referenced herein are clients 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.