What happened
Shares of New Oriental Education (EDU 3.32%) continued its ongoing slump Thursday, as the Chinese government's crackdown on the private tutoring industry continued. Certain local municipalities are reportedly implementing the recently issued government mandates, fueling the additional stock price declines. As of 12:52 p.m. EDT on Thursday, New Oriental Education shares had shed another 10% of their value.
So what
In mid-June, it was reported that China planned to introduce tough new regulations to govern the private tutoring industry, according to a report by Reuters. The new rules were much more stringent than previously anticipated, and could include a trial ban on both online and offline tutoring during the weekends, summer vacations, and the winter holiday breaks, weighing heavily on the consumer discretionary company's stock.
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Earlier today, Jefferies analyst John Chou cited Chinese education media sources, noting that several local Chinese governments, including Chaohu and Funing, have begun to implement the regulations, according to a report by The Fly. The cities have issued orders banning after-school tutoring (AST) for students from kindergarten to ninth grade during the country's summer vacation, which kicks off on Sept. 1.
Now what
Chou noted that the ban being implemented isn't nearly as bad as originally feared, leading the analyst to raise his stock price floor by 30%. "We believe this will gradually remove uncertainties, which have been the most significant drag on share prices," Chou said in a note to clients.
Roughly 50% of New Oriental Education's business won't be affected by the ban, according to estimates by Morgan Stanley. Given the stock has already plunged 69% from its February high, the bad news is already baked into the share price.
