East Buy Holding (HKG: 1797) (OTCPK: KLTHF) shares are up 14% on Tuesday morning. HKG 1797 shares are rising on no new information about the company - no new information in English at least. Which, given that the business is largely inside China and when not is near entirely in the Chinese language means that we are operating at something of an information disadvantage. Hong Kong quotes of China based companies are going to be driven by information flows that we out here aren't immediately privy to.
The background to all of this is something we've mentioned before about East Buy Holding: “East Buy Holdings (HK: 01797) (OTCPK: KLTHF) shares are up 10% in Hong Kong today. The background here is that the authorities, a couple of years back, changed the rules in China's online education market. This rather impacted (we can use grosser phrases if we like) upon the plans of many of the players in that market. There were a number of online education providers quoted on NASDAQ for example, all of whom suffered significant share price declines.”
The specific changes were that the private sector really just had to stop competing with the state sector. Therefore primary schools should teach primary school children, secondary secondary and so on. The private providers had to move out of those sectors and into those where the State did not have a significant offering. Elective courses, adult education, vocational training and so on. That did, substantially, roil the market.
East Buy Holding share price from Hong Kong Stock Exchange
Something very unfashionable that we believe about China is that it's probably the most free market economy in the world right now. Yes, obviously, there's that guiding hand of the CCP. Given those changes in what the private education sector was allowed to do that hand can often enough be a severe slap too. But once we account for those Chinese companies change so fast under the pressures of competition. As long as the particular rules are being followed there near never needs to be either permission sought nor delay. That is, Chinese companies adapt to changing circumstances faster than near anywhere else.
It's this which we think is driving East Buy Holdings shares up. Yes, there were those major changes to the education market a couple of years back. OK, so regroup, do what is allowed to be done and then regain that former growth: “Outstandingly, East Buy Holding's EPS shot from CN¥0.31 to CN¥0.61, over the last year. Year on year growth of 96% is certainly a sight to behold.” We might use slightly different language (being native speakers of English) but yes, that is impressive.
This is what we think is driving HKG 1797 shares - simply that they're growing the business at a rapid rate.
