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ChinaEdu Corp. - A Close Reading

Shares of ChinaEdu Corp. (CEDU), an educational services provider in China, have registered a decent gain for the year-to-date period -- appreciating nearly 43% and currently trade around $7. At the 2009 ROTH China Conference to be held between October 12 and 14 at the Fontainebleau Miami Beach in Florida, Shawn Ding, President and COO of ChinaEdu will make a presentation on Tuesday, October 13th.

For readers who are new to ChinaEdu, here is a brief overview of the company. Established in 1999, ChinaEdu Corp. is a provider of online degree programs of Chinese Universities. The company also offers recruiting and technology support services to the Universities, online interactive tutoring services and international curriculum programs. The company also operates private primary and secondary schools.

ChinaEdu listed its American Depositary Shares on the Nasdaq Global Market on December 11, 2007, pricing its IPO at $10 per ADS, raising $68.2 million. The company generates revenue from service fees and tuition payments derived from students who are enrolled in, or served by, its businesses.

As of June 30, 2009, the company had strategic relationships with 24 universities throughout China, 13 of which are under long-term, exclusive contracts with an additional four awaiting approval from Ministry of Education. The term of the contracts varies from 10 years to 50 years.

On July 22, ChinaEdu inked an agreement to provide exclusive technology and support services to Jiangsu University's adult education college. Jiangsu University has applied for approval to provide online degree education by the Ministry of Education in China. Currently ChinaEdu will be providing Jiangsu University with exclusive technology and support services for the next six years and once online degree approval is granted, the company's services will further be extended.

The agreement with Jiangsu University calls for a minimal amount of a technology service fee to be earned by ChinaEdu at the current stage and post approval, the company will receive approximately 8% of total growth tuition revenue for its service fees.

ChinaEdu also recently signed a 20-year collaborative alliance agreement with Fujian Radio and TV University in Fujian province. Under the agreement, the company holds a 51% equity interest and will provide the development and delivery of online education services to Fujian's K-12 (Kindergarten through grade 12) and adult students.

According to the company, online degree programs contribute to over 80% of its total revenue, followed by international curriculum program's 7%, private school's 7% and online school program's 5%.

For the second-quarter ended June 30, 2009 ChinaEdu's net income attributable to the company declined to RMB8.9 million from RMB9.2 million in the year-ago quarter. Similarly adjusted net income for the second-quarter of 2009 also dropped to RMB12.1 million from RMB13 million in the comparable quarter prior year. The decrease in both net income and adjusted net income attributable to the company was primarily due to the increase in cost of revenue in the second quarter of 2009, compared to the corresponding period in 2008, according to ChinaEdu.

However, on per ADS basis, net income attributable to the company increased to RMB0.51 (U$0.09) from RMB0.45 in the year-ago quarter. Similarly adjusted net income per ADS attributable to the company was RMB0.69 ($0.10), up from RMB0.63 in the comparable quarter last year. The company ascribed the increase in earnings per ADS to a share count reduction.

The company's quarterly overall net revenue grew by 11% to RMB88.3 million compared to the year-ago quarter, thanks to 9.6% growth in net revenue for online degree programs.

Late last month, ChinaEdu announced that it will reinstate the share buyback program authorized by the Board of Directors in June 2008 as the management team believes the current price levels do not reflect the fundamental strength of the company's business.

Looking ahead, ChinaEdu expects third-quarter net revenue to range between RMB84 million and RMB88 million, which represents a 2% to 7% growth over net revenue in the third quarter of 2008.

As of June 30, 2009, ChinaEdu had about 390,000 paying students. The participation rates in the educational system is expected to increase as demand for more skilled labor grows and ChinaEdu remains optimistic of realizing significant growth potential in the coming years. Will ChinaEdu make the grade? Stay tuned...

CEDU, which has thus far hit a 52-week low of $2.97 and 52-week high of $7.85, closed Friday's trade at $7, on an above-average volume of 37,015 shares.

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