Thematic Smart education 2.0: technology infrastructure, hardware and software trends in a new era

We look beyond the recent crackdown on private after-school tutoring (AST) to the smart infrastructure, software and hardware underpinning the ongoing digitalisation of China’s learning landscape. We have spoken with software providers, industry experts and educators, and leveraged UBS Evidence Lab’s app monitoring data and proprietary surveys of parents and adult students. UBS Evidence Lab's survey of more than 500 parents conducted after the AST crackdown points to trends that may boost demand for educational technology: 64% of parents expect to reallocate their AST budget to tech products, 53% may shift their children’s AST time back to school, 40% might reallocate the time to tech-based studying at home and 38% might attend school-provided online classes. We estimate public/ private spending on educational software and hardware reached Rmb380bn/ Rmb120bn in 2020E, and we expect official support for tech firms that facilitate education to continue.

We expect a secular trend of education digitalisation due to COVID-19, and vendors with large exposure to the 'to business/to government' education space could benefit as more technology resources are deployed to fill the AST void. The UBS Evidence Lab survey results suggest 63% of students used smart education infrastructure on a daily basis during the pandemic versus10% before. Usage has declined as COVID-19 has abated, but it is still higher than pre-pandemic levels. We believe AST tightening also acts as a tailwind for tech infrastructure as students spend more time in school and, per UBS Evidence Lab data, 85% of parents say schools have offered them more after-school services. In a Q-Series report, UBS analysts highlighted the shift to online education would likely create opportunities for 2B/2G services including cloud/software/electronic devices.

Cloud communications software enjoyed a boost during the COVID-19 lockdown, not only due to online education but also due to WFH. Despite the short-term impact from regulatory tightening, we believe COVID-19 is a long-term tailwind due to behavioural changes and products maturing. UBS Evidence Lab data shows that before COVID-19, users spent 38 minutes every week on online communications software; this rose to 121 minutes per week during the pandemic. Usage declined to 55 minutes between August 2020 and January 2021, but this is still 45% higher than before the pandemic.

Educational tablets, which integrate pre-installed resources and AI-enabled technology to help learning, may serve as an alternative to tutoring services. UBS Evidence Lab data shows buying tech tools is parents’ most popular choice when reallocating academic AST budgets, with almost two-thirds of respondents planning to buy equipment such as educational tablets. We think China's educational tablet market may reach US$1.6bn in 2021E. COVID-19 and AST tightening may accelerate shipment growth and drive ASPs higher.