TAL Jumps as Chinese Education Company Beats Earnings Estimates

  • Sales rise most in five quarters on expansion outside Beijing
  • Quarterly net income exceeds analyst forecasts by 16 percent

TAL Education Group rose to a three-week high after the Chinese after-school tutoring service reported better-than-forecast quarterly earnings as it expanded its network of learning centers.

The American depositary receipts gained 1.7 percent to $35.25 in New York on Thursday. Trading volume of 1.28 million shares was 3.2 times the daily average of the past three months. A Bloomberg gauge of the most-traded Chinese companies in the U.S. increased 0.3 percent in its third consecutive advance.

TAL, which focuses on science-based courses for K-12 students, said net income for the three months through May rose 42 percent from a year earlier as revenue increased 45 percent, the fastest pace in five quarters. Both figures exceeded analysts’ estimates. Enrollments jumped 48 percent as it added 14 learning centers in the quarter, expanding its network to 303 outlets. It attributed the better-than-forecast sales increase to growth outside Beijing, according to an earnings statement.

“It shows TAL’s expansion is successful,” Tian X. Hou, the founder of research firm T.H. Capital LLC, said by phone Thursday. “It started from Beijing and has expanded to other key cities where there is strong demand for elite tutoring courses. It makes good investments on improving online services, which will add to its distribution channels.”

Revenue Outlook

Net income rose to $19 million for the period, beating analysts’ average projection by 16 percent, according to data compiled by Bloomberg. The Beijing-based company forecast a sales increase of as much as 35 percent for the three months through August. The company’s ADRs have gained 25 percent this year.

New Oriental Education & Technology Group said on Tuesday that net income fell 18 percent from a year earlier while sales rose 14 percent. The company, China’s largest education provider, is shifting its focus to K-12 tutoring from classes on test preparation for overseas study.

JPMorgan Chase & Co. raised its price target for TAL Education by 2 percent to $48 Thursday and maintained the equivalent of a buy rating, citing “strong earnings growth.” The profit increase “would almost seem mundane” if not for the fact that New Oriental’s profit slumped in the same period, analysts led by Leon Chik wrote in a research note.

New Oriental’s ADRs advanced 1.5 percent to $23.20 on Thursday, pushing its gain for the year to 14 percent. The Bloomberg China-U.S. Equity Index rose to 127.23. The Deutsche X-trackers A-Shares Exchange-Traded Fund jumped 3 percent to $44.30, the highest this month, after the Shanghai Composite Index capped a six-day rally.

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