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Morgan Stanley thinks Chinese education companies have a way forward despite the crackdown

  • Beaten-down Chinese education stocks can recover by double-digits as the industry shifts to businesses like vocational training following this summer's regulatory crackdown, Morgan Stanley analysts said.
  • They upgraded U.S.-listed New Oriental Education & Technology to "overweight" with expectations of 55% gains in the share price, according to an Aug. 29 report.
  • The analysts expect further government support for vocational training, where they like Hong Kong-listed China East Education and predict gains of nearly 70% ahead.

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This photo taken on December 18, 2018 shows university students preparing for the upcoming National Entrance Examination for Postgraduate (NEEP) at a library of Shenyang Agricultural University in China's northeastern Liaoning province.STR | AFP | Getty Images

BEIJING — Beaten-down Chinese education stocks can recover by double-digits as the industry shifts to businesses like vocational training following this summer's regulatory crackdown, Morgan Stanley analysts said.

U.S.-listed after-school tutoring giants New Oriental Education & Technology and TAL Education have plunged by 90% this year. In July, Chinese authorities abruptly banned school-age tutoring businesses from operating on weekends and holidays, and ordered them to restructure as non-profits.

Despite the new rules, both companies have "ample cash" to expand into new businesses like non-academic tutoring, Morgan Stanley equity analysts Sheng Zhong and Elsie Sheng said in an Aug. 29 report.

They upgraded New Oriental to "overweight" and predict shares can soar by 55%, even after cutting the price target to $3.50. The company has already launched courses in art and speech, and is recruiting for dance, music and calligraphy classes, the report said.

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