Check on China: ChinaCast Education Corporation

Chinese culture has long placed a high value on education, traditionally attaching great importance to and a healthy respect for learning. But the Cultural Revolution, a decade of social and political upheaval that ended after the death of Mao Zedong in 1976, stifled Chinese academic progress. Since then, China has come a long way. Literacy has risen to 85% from 60% (the literacy rate for 12- to 40-year-olds now stands at 96%).

In a society where excelling in school is, for the most part, the only stepping stone to success, education takes on great significance. Also, as the country's red-hot economy fuels the growth of both domestic and international businesses, the demand for higher levels of education and skills continues to increase.

The Chinese government is nudging institutions of higher education to turn out a well-trained workforce with practical skills and language abilities that will enable China to develop service-based industries and compete with tech-savvy global companies.

One outfit poised to capitalize on China's fast growing education market is ChinaCast Education Corporation (Nasdaq: CAST), an e-learning and private-education specialist that provides Internet-based and conventional training services to universities, trade schools, corporations and government agencies. ChinaCast specializes in interactive distance learning, multimedia education content, online educational portals, language training and information technology management and certification courses.

Following in the footsteps of Beijing-based educational services juggernaut New Oriental Education & Technology Group Inc. (NYSE: EDU), which provides traditional and online learning programs, ChinaCast hopes to mimic the success of U.S. companies like such as DeVry Inc. (NYSE: DV), ITT Educational Services, Inc. (Nasdaq: ESI), Appolo Group, Inc. (Nasdaq: APOL) and Corinthian Colleges, Inc.(Nasdaq: COCO). The company is off to a good start, with three solid quarters, a couple of smart acquisitions and a recent Nasdaq listing to its credit.

Previously listed on the Singapore Exchange, ChinaCast made its American debut on Oct. 29. Two weeks later, it announced impressive third-quarter results: total revenues came in at RMB46 million (US$6.1 million), a 25% year-over-year increase. Service revenues, which are typically recurring in nature, totaled RMB38 million (US$5.1 million), a 16% rise from the same period in 2006. Equipment sales soared 91% year-over-year to RMB8 million (US$1.1 million). Net income rose 66% to $2.2 million from the year-ago quarter. ChinaCast expects fiscal 2007 revenue to be in the range of RMB187.5 million (US$25 million) to RMB195 (US$26 million) and its net income, excluding share-based compensation expenses, to be in the range of RMB52.5 million (US$7.0 million) to RMB56.3 million (US$7.5 million).

Since acquiring exclusive rights to China's "Modern English" brand in April 2007, ChinaCast's subsidiary, ChinaCast Language Training Education Technology Limited, has opened eight English language training centers in Beijing to provide advanced conversational English courses to individual and corporate clients, K-12 classes and test preparation services. The company has a goal of establishing 20 such centers by November 2008.

Chinacast also made two other strategic moves into brick-and-mortar education. During the most recent quarter, it announced its intent to purchase Wuhan Media and Communications College, an independent school affiliated with Huazhong Normal University that has over 6,500 students and plans to increase enrollment to 11,000 by the 2011 academic year. On Dec. 4, Chinacast announced an agreement to acquire a 70% to 80% controlling interest in the Foreign Trade & Business College of Chongqing Normal University, an independent college with some 10,000 students.

"We hope to add value for students and shareholders through the synergies created between our brick-and-mortar schools and our e-learning business by using the content owned by the schools and distributing it through our nationwide distance learning network," Ron Chan, Chairman and CEO of ChinaCast, said in a statement. "Over the next 12 months we anticipate continued growth in our core e-learning business while expanding our Daily English centers nationwide. We also seek to acquire additional brick-and-mortar schools in the career/vocational sectors to become a major player in the private education market in China."

The Chinese market for language training is valued at $2 billion annually, and is expected to see continued growth as direct foreign investment increases and international events like the 2008 Olympic Games in Beijing and the 2010 World Expo in Shanghai create surging demand for English-language training.

The post-secondary education market in China has shown tremendous growth in the last several years, as the nation's enrollment figures have soared. According to China's Ministry of Education, while only 7% of 18- to 22-year-olds were enrolled in post-secondary institutions in 1996, 15% now pursue higher learning. Education czars are pushing for the number to rise to a target of 40% by 2020.

In November, Global Hunter Securities initiated coverage of ChinaCast with a "buy" rating and a 12-month target price of $9.50. Analyst Ping Luo asserts that the company holds a leading position in China's e-learning market and is well positioned to tap into the country's lucrative traditional education marketplace. The analysts note the company's attractive balance sheet and robust profit margins.

Everything considered — including stiff competition from other promising newcomers such as ChinaEdu Corporation (Nasdaq: CEDU), Noah Education Holdings Ltd. (Nasdaq: NED) and Ambow Education Co. Ltd. — ChinaCast appears likely to continue to make the grade for the foreseeable future.

ChinaCast (CAST) shares closed at $6.79 on Wednesday.

About the Author
Shannon Roxborough previously worked as a global risk analyst, and lived in China for nearly two years. Read More

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