Chinese education market: digitalization extends new growth tracks

Past: educational informatization 1.0 and 2.0 growth phases have birthed excellence and sustainable quality educational digital resources

Educational intelligentization: Chinese policy has guided the education informatization industry for more than 20 years, taking it through the 1.0 and 2.0 growth phases. Internet penetration in Chinese primary and secondary schools has reached 100% and 99.5% of schools have multimedia classrooms. The country implemented a comprehensive national education digitalization strategy and launched an integrated national public service platform in 2022 to drive the intelligentization of the education market. The spillover effects of digital technology have supercharged and sustained quality education growth.?The platform has since become the world's largest education resource database, having recorded over 6.7bn visits in the past one year.

Present: the elite's priority on informatization and research could drive high-growth applications and a wide range of scenarios

Policy imperative: Minister of Education Huai Jinpeng, whose background is in computers and who was the former Vice Minister of Industry and Information Technology, has reiterated a need to "increase the supply of artificial intelligence education policies" and "enhance the implementation of educational digitalization strategic measures" in his speeches over the past two years. We believe that policy will drive top-down growth in informatization, digitization and basic research.

World conference: The World Digital Education Conference in Beijing on 13 Feb featured an address by former Vice Premier Sun Chunlan and a talk by the Education Minister, and the announcement of the Smart Education Blue Book and the World Digital Education Alliance initiatives. Parallel forums were also held on digital empowerment in basic, vocational and higher education. Participants were from more than 130 countries and regions, while many leading Chinese companies took part in the exhibition. The event reflects how times have changed with on-the-ground informatization.

Future: educational equity, better quality and personalization, aligns with China's dual energy curbs strategy, AI and other tech advances could drive upgrades

Raising teaching efficiency: quality digital teaching resources offer digital technology interoperability, dynamic sharing and other benefits. They not only remove time and space constraints, but also enable educational equity and balance resources. Technologies such as big data analysis and information-based teaching improve teaching quality and enable personalized teaching that matches a student's aptitude. The use of Information resources enables students to reduce their energy burden in line with China's double-reduction goals. It also improves teacher-to-students efficiency and aids after-school services; quality teaching content also alleviates the insufficiency of teachers and external funding.

AI advances: the rapid advance of AI and other technologies could accelerate education informatization upgrades; for example, AIGC technology intelligentizes reviews and language services. Education informatization market leaders such as HiteVision and Chengdu Jiafaantai Education Technology have drawn up AI related plans and could benefit from future technological breakthroughs.

Investment ideas: we suggest that investors watch these stocks:

-HiteVision (002955 CH, BUY; initiation)

-Chengdu Jiafaantai Education Technology (300559 CH, BUY; initiation)

-Guangzhou Shiyuan Electronic Technology (002841 CH, BUY) (joint coverage: computer and electronics desks)

-Shenzhen KTC Technology (001308 CH, BUY) (joint coverage: textile and electronics desks).

Not-rated market players include: China Reform Culture Holdings (600636 CH).

Risks include: macroeconomic downturn; worse-than-expected technological R&D outcomes; weaker-than-expected policy implementation; and a pandemic resurgence could affect business development.

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