We scour the net for great ideas, so you don't have to
Claim this username to collect earnings from this post, and the portfolio!
TAL Education Group ($TAL). Great opportunity to buy one of the best franchises in China.
It is down 70% from its ATH. Now at $21.50 from $90.15.
Positions: 100 Calls Jan 20 2023 Strike 32.5
Last year, I was in the rocket game before you mofos knew about
I’m gonna make it easy for you to digest this DD.
Here's why it crashed:
* Fears of Chinese ADRs being delisted.
* The government threatened harsh regulations on restricting afterschool tuition for students K1-12.
* The market sold on fears that all afterschool tuition would be banned, including weekday and weekends.
* TAL was very expensive at $90.15.
Here's why you should buy:
* Panic selling is over - TAL hit $17.80 and was immediately bought up the day after back to $21.
* Financial institutions are buying this shit up - UBS Asset Management bought 4% immediately
* Management of TAL has announced they are pivoting towards tertiary education services. This will no longer expose them to regulatory changes.
*The government also announced strict regulations for future ADRs and future issuance of already listed ADRs. Many Chinese companies have chosen to list in HK instead.
This means that existing ADRs will not be delisted; they can continue to be traded. Good for TAL.
Basically, no more listing of Chinese companies in the US. Less access to capital for TAL's competitors, better for TAL.
US capital will not be able to invest in Chinese companies as easily anymore, good for already listed companies, fantastic for TAL.
Get ready for the real knowledge bomb.
TAL is an after-school tuition company, one of the largest in China in fact. They mostly run tuition lessons for students from the ages 6 to 18. It should be no surprise to reddit that
">CHINESE FAMILIES REALLY CARE ABOUT SCHOOLING. TAL and the entire after-school tuition industry have been a huge beneficiary of this (see 10-year chart for TAL).
As you can tell from the chart that if we ignore the part from Feb 2021 onwards, this has been an absolute winner in the Chinese ADR Stonk market. What’s happened since then? Why has TAL taken a massive fucking dump you ask?
Well, Winnie the Pooh (or Daddy Xi as we Chinese like to address him) has led a personal vendetta against the after-school tuition industry. He believes that students are being forced to work too hard amidst the insanely competitive society in China. While Daddy Xi isn’t exactly wrong (how else are we Chinese folks supposed to live up to the stereotypes?!), I believe that the expectations of the new set of regulations (yet to be confirmed) are going to be much much worse than the reality that we shall be presented with. There has been doomsday talks of delisting, banning of weekend lessons (70% of revenues) or even outright banning of privately run tuition centers. Whilst I won’t rule any of these possibilities out entire, I believe the odds of them happening are very low if history is a guide.
What history you may ask? Well, one only has to look at China’s smaller and more fashionable neighbour, South Korea. Tuition participation rates in S.K are even higher than that of China historically and the government tried an outright ban of the industry in the late 90s. Guess what happened after? Tuition went UNDERGROUND📚📚📚. The moral of the story is that there is that banning additional Education for Asians is like Prohibition🍺🍺🍺 for you Yankees. It ain't gonna work. I expect a huge share price recovery (easily 100%) from here once the actual policies are announced. There is also huge optionality for a company like TAL to pivot its business in the long run by leveraging on its substantial brand equity in China.
Some additional crayon analysis. The stock has fallen from 90 dollars to a low of 17.5 per share last week. On the day it hit 17.5, the stock was immediately bidded back up to 20, closing the day flat after opening down 10%. This sure looks to me like whales are scooping the low. TAL is up another 10% the day after. It was revealed a day later that UBS took a 4% stake.
The low is in. Get in on the train now.