A Little Education Goes A Long Way

Hong Kong -Michael Minhong Yu is more than a quarter of the way to joining the Forbe’s billionaires list.

The 44-year-old founder of New Oriental Education & Technology Group is worth at least $270 million, after his company’s successful initial public offering in New York last week. Offered at $15, shares in China’s leading provider of educational services are now worth $24.67, a 64% premium to the IPO price. That values the company at about $870 million, giving Yu’s 31% stake a price tag of more than a quarter of a billion dollars.

The elevated status of Yu, who started his career as an English teacher at Beijing University, attests to the growing importance Chinese parents place on higher education for their children. Chinese families typically have only one child due to the country’s long-standing policy of limiting the growth of its population, now 1.3 billion.

New Oriental makes money mostly from English language test preparation courses. It enjoys a near-monopoly in language and entrance examinations used in the United States, including the Test of English as a Foreign Language, the Scholastic Aptitude Test used to qualify for undergraduate programs and the Graduate Management Admission Test, required of business school applicants.

In the fiscal year ended in March, New Oriental had more than 375,000 students enrolled for test preparation courses, about a third of whom took courses for overseas examinations.

Given the consistently high interest of Chinese students in studying in the United States, New Oriental stands to benefit from a steady recovery in the number of students enrolled in America. The number dropped precipitously in the wake of the Sept. 11 terror attacks due to tight visa screening. That process has resumed to normal. In 2005, there were 62,523 Chinese students enrolled in U.S. institutions, second only to the 80,466 hailing from India.

It also helps that China is pressing its citizens to speak better English in preparation of the 2008 Beijing Olympics and that growing international trade has increased the importance of fluency in English.

These factors supported New Oriental’s IPO, which was 35 times oversubscribed.

Investors have brushed aside a copyright infringement and testing fraud case that occurred early last year when New Oriental was fined $774,000 and required to make a public apology after the highest court in Beijing ruled in favor of two U.S. graduate study test administration agencies. The Graduate Management Admission Council, which administers the GMAT, and Educational Testing Service, whose tests include the SAT, complained New Oriental illegally copied, published and sold test questions since 1997.

Yu attributed the company’s IPO success to investors’ confidence in China’s economic growth. He might as well thank the high thresholds for foreign students in attending U.S. universities. Yu’s difficulties in securing an enrollment motivated him to set up Oriental 13 years ago.

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