The shadow over education stocks lingers as the market shows skepticism toward Tianti's transformation

Following the regulatory overhaul in education, the company’s new business model focuses on providing educational services to schools while gradually expanding the use of artificial intelligence

Key points:

* Tillight International's net profit for the first half of the fiscal year ending in February increased by 21%, with revenue growing by 14.2%

* After exiting the tutoring business following the regulatory overhaul in 2021, the company focused on school operations, doubling its gross margin compared to before

By Tan Ying, the author of this article

$TIANLI INT HLDG (01773.HK)$ It is one of the few education technology companies that not only survived but also continued to grow five years after China banned for-profit K-12 subject-based after-school training. However, investors who were heavily impacted during the policy crackdown seem unwilling to give the company a second chance.

This is quite unfortunate for Tillight, as its transformation represents a rebirth story in the promising field of education, particularly within the cultural context of Chinese society where education is highly valued. The company announced last weekLatest performancethat revenue for the first half of the fiscal year ending in February grew by 14% year-over-year to 2.1 billion yuan ($314 million), while net profit increased by 21% to 471 million yuan.

Of this, approximately 81.8 million yuan in impairment reversals constituted the main source of profit growth, as Tillight obtained operating licenses for art training businesses previously written off due to policy overhauls. This reversal is only a small portion of the more than 1 billion yuan in impairments the company recorded during the 2021 regulatory crackdown. Excluding this reversal, Tillight’s profits were essentially flat compared to the same period last year.

Despite double-digit revenue growth, profits remained largely flat, partly due to margin pressure, with the company’s gross margin for the latest half-year falling by 2.4 percentage points to 35.2%. However, it is worth noting that this level is still about double the 17.2% before the regulatory overhaul.

Tillight’s situation is similar to $Gaotu Techedu (GOTU.US)$、 $TAL Education (TAL.US)$and$New Oriental (EDU.US)$ peers such as Gaotu, which have survived by shifting to education-related services permitted under regulations. Among them, Gaotu pivoted to college entrance exam and civil service exam preparation, TAL Education focuses on small-class quality education, and New Oriental has shifted its focus to adult education and non-academic tutoring.

Transitioning to educational services

Tianli also underwent a transformation. The company's founder, Luo Shi, was originally a real estate developer and operated private schools in his early years, establishing the first school in 2002. The company continued to expand, and by the time it listed in Hong Kong in 2018, it had 24 schools and 11 training centers, mainly located in Sichuan and surrounding provinces in the southwestern region.

Following regulatory overhauls, Tianli removed 30 schools from its consolidated financials, effectively separating them from the listed entity’s operations. Currently, the company primarily generates revenue by providing diversified services to its existing network of self-operated and franchised schools, including educational services, management services, logistics services, and product sales.

The integrated education services segment, which is the company's largest revenue source, grew only 3.4% year-on-year to approximately 1 billion yuan in the most recent half-year period. Product sales recorded faster growth, rising 45.5% year-on-year to 691 million yuan, while logistics service revenue fell 1.7% to 327 million yuan. Management and franchise fees surged 38.7%, but the scale remains small at just 78.1 million yuan.

This relatively stable performance extended the growth trend seen in the previous fiscal year. For the fiscal year ended last August, the company's revenue increased 8.1% to 3.58 billion yuan, and net profit rose 16.5% to 648 million yuan.

In a recent research report, Huatai Securities raised its profit forecast for Tianli this fiscal year by 15% to 773 million yuan and maintained a 'Buy' rating. Guosen Securities also kept its 'Outperform' rating but noted that the market still applies a discount to related stocks due to declining birth rates and low liquidity in the education sector.

Despite the overall positive signals from the latest earnings results, investor reaction has remained cautious. Since the earnings announcement last Friday, the share price has dropped more than 10% and is still about 80% below its pre-regulatory peak.

Embracing AI

Tianli and its peers are increasing their investments in artificial intelligence, a move that seems almost inevitable for education companies. However, investors may not yet have fully priced this into the stock.

Gaotu uses DeepSeek, a leading Chinese AI company, as the core of its AI tools and implements an 'All with AI' business strategy. TAL Education has developed a large model focused on mathematics called Math GPT and collaborated with Beijing Normal University to create the 'Shicheng Wanxiang' educational model. New Oriental launched personalized one-on-one tutoring camps based on AI and its 'One Point One Look' application, built on a personalized teaching system.

Tianli is also actively deploying AI, launching 'Tianli Qiming AI Learning Companion' in June last year, which it claims to be China's first large-scale model to complete registration and be widely applied in classrooms. Founder Luo Shi told China Daily that the application combines extensive resources with personalized growth. 'The large model allows students to redefine their learning paths, making quality educational resources more accessible and turning personalized education into a reality.'

Although a detailed comparison of these products still requires expertise, Zhang Shaogang, Director of the China Educational Technology Association, pointed out that Tianti's large model is trained based on teaching experience from over 100 schools and 250,000 students.

According to Luo Yongqiang, an executive at Tianti, as of July 2025, the model has been implemented in 107 schools nationwide. In March this year, Tianti signed a strategic agreement with Tencent to jointly develop a 'Subject Brain' with 'cognitive-level intelligence.' The company stated that the system will generate specialized agents for different subjects, covering the entire process of research, teaching, learning, practice, testing, and evaluation.

The AI business appears to be growing rapidly. As of the end of February, Tianti's 26th AI College Entrance Exam Sprint Camp had enrolled 2,331 students, marking an annual increase of over 130%. However, the company did not disclose specific financial data for the AI business, which is categorized under the comprehensive educational services segment, indicating its current contribution to revenue may still be limited.

In terms of cost control, Tianti has also shown strong performance. The latest semi-annual sales, administrative, and financial expenses as a percentage of revenue decreased by 0.5 percentage points to 10.7%. Huatai Securities noted that the company 'has achieved a good balance between growth and efficiency.'

Whether Tianti's transformation can change investors' existing impressions remains to be seen, as many are still digesting losses brought about by regulatory crackdowns. However, the company has at least re-proven its ability to sustain operations. Its current price-to-earnings ratio is approximately 6.5 times, much lower than the roughly 24 times for Gaotu and New Oriental. As the transformation progresses, it may be worth investors reassessing.

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