Education Industry: Industry Featuring Economic Moat

The author is an analyst of NH Investment & Securities. She can be reached at [email protected] — Ed.

Major education companies enjoy a strong economic moat

We maintain a positive rating on the domestic education industry.

1) Solid market share enjoyed by existing education companies should serve as a strong economic moat. The past decade has seen few new entries into the market and multiple exits from it due to a decline in the number of Korean students. But through this process, the surviving players in the education field have been able to solidify their market shares.

2) Thanks to the rapid structural digital transition triggered by the Covid-19 crisis, established education players have progressed from a phase of cost (investment) expansion into a period of profit harvesting.

3) In the age of inflation, online education providers for high school students should enjoy strong price competitiveness against offline competitors. In line with the rapid expansion of study café franchises in Korea, online content has become the main source of education for MZers in Korea. And, rather than running a simple space rental business model, study café brands have established/led the spread of ‘Sca’ (study café study group) and ‘Cagong’ (public café study group) cultures, and they provide online content via partnerships with various educational platforms.

Online classes hold price competitiveness amid high inflation

When it comes to education services, consumers prioritize quality over price. In the case of elementary and middle school education, as: 1) the market is highly fragmented; and 2) it is difficult for education companies to differentiate their content, they lack sufficient power in the market to determine prices for their services. In fact, most online education classes for elementary and middle school students are priced at around W139,000 per month when paying in lump sum for 12 months, a level similar to their monthly average cost of W137,000 for offline classes. Thus, for elementary and middle school education, it is important for education firms to adopt a lock-in strategy in order to keep elementary students through their middle school years or kids through their elementary school years.

High school education well capable of defending margins amid high inflation

In contrast, in the case of high school education, firms can defend their margins by boosting prices. Data shows that high school students spend an average of W300,000 per month for offline classes. But, as for online classes, Megapass and Daesung MiMac cost around only W50,000 and W30,000 per month, respectively (if paid in lump sum for 12 months). Thus, even if consumption slows down next year, online classes for high school students are forecast to remain largely unaffected thanks to their price competitiveness. In fact, more high school students will likely opt for high-quality online classes.

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