Golden Sun Education Shines Brightly in New York Trading Debut

The foreign language educator’s shares quadrupled on their New York debut on Wednesday, and continued to climb on their second day

Key Takeaways:

• Golden Sun Education’s shares quadrupled in their first two trading days in New York, reflecting returning investor confidence to U.S.-listed Chinese stocks
• Company sold off several schools after last year’s Chinese crackdown on private education providers, and now focuses on foreign language tutoring services

By Doug Young

Is the sun finally set to shine again on new U.S. listings by Chinese companies?

The answer appears to be “yes,” at least based on the blockbuster trading debut for the newly listed Golden Sun Education Group Ltd. (GSUN.US). The company charged out of the gate on Wednesday with a massive rally that saw its shares zoom from their IPO price of $4 to close up by a factor of four at $16.30. Lest any doubters think the first-day performance was a fluke, the stock continued to climb on its second day to close up another 26% to $20.50.

In the course of the two-day rally, Golden Sun’s market value rose from an initial $72 million to its current level of more than $300 million.

The huge rally was all the more impressive when one considers that Golden Sun offers education services – one of the many sectors targeted for crackdowns by Chinese regulators last year. In fact, the company that made its debut this week was really a Golden Sun 2.0.

The original Golden Sun 1.0 that made its first public filing for a New York IPO in May 2021 owned and operated several schools. It later disposed of them after such ownership by for-profit companies was banned under a new Chinese law that took effect last fall, aimed at lightening the homework burden on K-12 students and the financial burden on their parents.

This latest trading debut looks quite encouraging because it’s the first following a recent series of signals showing that China may be easing its regulatory onslaught of the last year. In addition to education, other sectors that have come under fire include gaming, cosmetic surgery and big tech companies like Alibaba (BABA.US; 9988.HK) and Tencent (0700.HK) that wield near-monopolistic powers in their respective areas.

The most recent signal of regulatory easing came earlier this month when foreign media reported that China’s internet regulator was wrapping up a yearlong data security review of three companies, the Uber-like DiDi Global (DIDIY.US), recruiting services company Kanzhun (BZ.US) and trucking app operator Full Truck Alliance (YMM.US).

All three of those companies had been banned from signing up new users while the reviews were in progress, putting a serious damper on their business. What’s more, the reviews also included the major risk that any of the companies might be required to delist from New York if the Chinese regulator determined a continued U.S. listing might pose a national security threat.

Several other regulatory risks were also hanging over all U.S.-listed Chinese companies due to concerns from both the U.S. and Chinese securities regulators. The U.S. Securities and Exchange Commission (SEC) was threatening to delist all U.S.-traded Chinese stocks over a disclosure dispute with China – an impasse that the two sides are now reportedly close to resolving. Many investors had also worried that China might outlaw U.S. listings by Chinese companies, though the Chinese securities regulator in April reaffirmed that such listings would be allow to continue.

Regulatory hurdles

All that said, Golden Sun’s latest IPO prospectus filed on May 31 is quite a different document from the original prospectus filed a year earlier. It contains a detailed discussion on the education crackdown, as well as all the steps the company took to bring itself into compliance with the new regulatory regime. As we’ve previously noted, the biggest of those steps was its sale of several private schools that were no longer eligible for ownership by private for-profit companies.

In the process of its overhaul, Golden Sun’s revenue fell from about $14 million for its fiscal year through September 2020 in its original prospectus to a revised $7.7 million in the latest document – a loss of nearly half its business. The company reported a $55,000 profit for that year in its original prospectus, though that figure became a small net loss from continuing operations in the updated version.

The earlier prospectus didn’t include any data from the latest fiscal year through last September. But that data was included in the latest prospectus and was far more encouraging, reflecting the higher margins for educational services that are now the company’s core business. Following its overhaul, Golden Sun now mainly offers foreign language training, most notably for Spanish. Such instruction falls outside the crackdown, which banned private companies from offering tutorial services for core-curriculum subjects for K-12 students.

Golden Sun reported $15 million in revenue for its fiscal year through September 2021, roughly returning to the 2020 level before its overhaul. It posted a $2 million profit for the year, including a $1.3 million profit from continuing operations. That shows the company now looks well focused on foreign language tutorial services, rather than less profitable school operations. Perhaps that’s why investors were so eager to purchase the stock when it made its trading debut.

In fact, Golden Sun is just the latest publicly listed Chinese education company to find some success as it tries to chart a way forward in the new regulatory landscape. The much larger New Oriental (EDU.US; 9901.HK) and its Koolearn (1797.HK) online subsidiary made headlines last week when reports emerged that the pair were finding success putting their teachers to work as livestreaming e-commerce hosts. Another company, formerly known as Rise Education, also jettisoned its core education business and earlier this month used its New York-traded shell as a backdoor listing vehicle for electric vehicle charging services company NaaS Technology (NAAS.US).

At the end of the day, the latest signs certainly look positive for companies that have managed to survive the education crackdown, and more broadly for U.S.-listed Chinese companies in general. Perhaps that’s why investors have rewarded Golden Sun with a lofty price-to-earnings ratio (P/E) of about 180. We’ll have to wait and see if some of the other education survivors command similarly high ratios once they get back on their feet. At the very least, Golden Sun’s strong debut seems to indicate investor confidence may finally be returning to embattled U.S.-listed Chinese stocks.

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