INDUSTRY OVERVIEW. 1) the economy maintain a steady growth across the forecast period;

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1 SYNOVATE REPORT On 14 April 2010, we engaged the business consulting unit of Synovate Limited to undertake a study on the tutoring business market in Hong Kong and China at a fee of approximately HK$338,000. The study is set out in the Synovate Report. Our Directors confirm that Synovate Limited, including all of its subsidiaries, divisions and units, is independent of and not connect with us in any way. Synovate Limited, on behalf of itself, its subsidiaries and units, confirms that the Synovate Report was prepared in its ordinary course of business, and has given its consent for us to quote from the Synovate Report and to use information contained in the Synovate Report in this prospectus. The information contained in the Synovate Report is derived by means of data and intelligence gathering methodology which includes (i) desk research conducted by the business consulting unit of Synovate Limited including specialized industry literature, government/regulatory sources, online data sources, third-party reports and surveys, industry reports and analyst reports, industry associations and the database maintained by Synovate Limited; and (ii) primary research by having interviews with key stakeholders and industry experts, including private and non-private managerial executives and curriculum planners, private secondary school supervisors and person in charge, private and non-private English language learning institutes managerial executives and curriculum planners, education departments officials and related authorities, tutoring and teacher s associations and other referred experts in Hong Kong and China. According to Synovate Report, in deriving the market value of secondary tutoring business, primary tutoring business and private English learning business, the following assumptions have been adopted: 1) the economy maintain a steady growth across the forecast period; 2) the demand for tutoring business in Hong Kong is assumed to rise with more new players entering the market and the commencement of the new academic structure in the school year 2009/2010; 3) there is no external shock such as financial crisis or the wide outbreak of diseases to affect the demand and supply of tutoring business in Hong Kong and the PRC over during the forecast period; 4) The forecast Hong Kong dollar value is based on the current Hong Kong dollar value in 2010, with inflation factor input to the forecasting model. The following parameters have been considered in estimating the market value of secondary tutoring business, primary tutoring business and private English learning business: 1) total primary and secondary student population in Hong Kong and the PRC; 74

2 2) number of primary and secondary tutoring centers and branches in Hong Kong; 3) number of English test preparation providers in the PRC; 4) number of private secondary school (day and evening) and students in Hong Kong; 5) total tutoring center capacity in Hong Kong; 6) student enrollment for each tutoring business providers in Hong Kong and number of test takers of various tests in the PRC; 7) revenues for the leading tutoring service providers in Hong Kong and the PRC; 8) student spending on tutoring service in Hong Kong and PRC, with consideration of inflation factor Synovate Limited was formed in 2003 and is a research institute with close to 6,000 employees worldwide and coverage in over 100 cities spanning over 62 countries. It is a market research unit of Aegis Group plc, a company listed on the London [ ]. Services of the business consulting unit of Synovate Limited include market profiling, market sizing, share and segmentation analysis, distribution and value analysis, competitor tracking and corporate intelligence. In relation to the education industry in the past, Synovate Limited has also carried out a number of market studies within the Asia-Pacific region including market entry study of the English education, E-learning, distance learning market as well as competitive analysis of the vocational, non-vocational and soft skills training market. This prospectus contains some information extracted from the Synovate Report, and they are in sections headed Summary, Industry Overview, Business and Financial Information. OVERVIEW OF THE HONG KONG EDUCATION SYSTEM According to the EDB, in 2004, the Hong Kong government approved the education reform with the vision to align Hong Kong with a number of the important education systems of other countries in the world. Such reform, among others, includes: (1) Greater chance of further education Upon the nine-year free and universal education (primary to junior secondary), free senior secondary education has been offered through public schools since the school year 2008/

3 (2) Enhancement of English ability The fine-tune of the medium of instruction for secondary school will be effective from the school year 2010/2011, starting from Secondary 1 students, in order to enhance the biliterate and trilingual abilities. This policy allows secondary schools to appropriately and professionally diversify the medium of instruction among non-language subjects. (3) Diversification of education The introduction of new academic structure, 334 System, which is aimed to provide a vibrant, flexible, coherent, and diversified education system to widen the knowledge of the students and to attain all-rounded development in order to get prepared for the future challenges. Starting from the school year 2009/2010, the new academic structure, 334 System, for secondary and university education system is replacing the original academic structure, the 3223 structure. The 3223 structure included 7 years of secondary education and 3 years of university education, under which Form 5 students had to take HKCEE in order to proceed to Form 6 and Form 7 students had to take HKAL in order to meet university entrance criteria. The 334 System includes 3 years of junior secondary education, 3 years of senior secondary education, and 4 years of university education. A brand new assessment and grading system, HKDSE, has been introduced for the public examination to replace the two public examinations, the HKCEE and HKALE & HKASLE. HKDSE will be held at the end of Secondary 6 and the first HKDSE will be held in HKDSE emphasizes on testing the students critical thinking and knowledge application skills, instead of the recital application on the conventional examinations. Under the system, the curriculum of senior secondary education are also changed. Liberal Studies has been introduced into the new senior secondary education curriculum and HKDSE, and is one of the compulsory core subjects which students are required to take. In addition, a variety of subjects can be freely chosen by students to meet their interests and needs, so as to attain the aims of whole-person development and life-long learning for the new education system. SECONDARY EDUCATION IN HONG KONG Secondary School Students According to Synovate Report, there were approximately 460,472 secondary school students in Hong Kong in the school year 2009/2010, of which about 99% are enrolled in day schools with the remaining 1% in evening schools. Immigrants from Mainland China have assisted to add up the number of secondary school students. However, a significant and sustained decrease in birth rate has resulted in decline in the number of secondary school student in Hong Kong in recent years. 76

4 The following graph shows the total number of secondary school students in Hong Kong from the school year 2005/2006 to 2009/2010, and the forecast number of students from the school year 2010/2011 to 2021/2022: Number of secondary school students in Hong Kong Persons 500, , , , , / / / / / / / / / / / / / / / / /22 School year Notes: (1) Figures include both day and evening schools and exclude English schools foundation schools and international schools. (2) Figures are as at September of the respective school years. For example, figure for the school year 2009/2010 refers to admission for the school year September 2009 to June A negative CAGR of approximately 0.5% of secondary school students in Hong Kong was recorded from the school year 2005/2006 to 2009/2010. Nevertheless, the birth rate in Hong Kong stopped dropping and has been increasing since 2004, resulting in an expected increase in the number of secondary school students in Hong Kong from the school year 2017/2018 onwards. Hence, a CAGR of approximately 0.2% is expected from the school year 2010/2011 to 2021/2022. Under the old academic structure, a process of elimination took place whereupon completion of Form 5, certain portion of students with relatively weaker academic performances would be unable to proceed to Form 6. With the implementation of the 334 System, in September 2009, all students will have the opportunity to study up to Secondary 6, if he/she so wishes after completing compulsory education to Secondary 3, without encountering any process of elimination. According to the Synovate Report, compared to approximately 63,325 Form 6 and Form 7 students in aggregate when the school year 2010/2011 commenced in September 2010, it is estimated that there will be approximately 80,404 Secondary 6 students and approximately 27,745 Form 7 students in school year 2011/2012 who will take the HKDSE and HKALE & HKASLE in 2012 respectively. 77

5 Secondary Tutoring Sector (a) Secondary tutoring centre and capacity According to the Synovate Report, the total secondary tutoring centre capacity in Hong Kong as at 31 May 2011 was about 45,683 students, of which about 54% and 46% was accounted for by chained tutoring centres and individual tutoring centres respectively. Over half of the chained tutoring centre capacity in the school year 2009/2010 was run for by 6 services providers. The number of chained tutoring centres in Hong Kong grew to 106 in the school year 2009/2010, compared to 38 centres in 2005/06. The following chart shows the total number of secondary tutoring branches run by chained and individual tutoring centres in Hong Kong from the school year 2005/2006 to 2009/2010 and the forecast number from the school year 2010/2011 to 2014/2015: Number of tutoring branches in Hong Kong Units 1, / / / / / / / / / /15 School year Notes: (1) Figures are as at September of the respective school years. (2) Number of branches applies to branches that offer secondary tutoring service and not primary services. As shown in the chart above, the number of tutoring branches in Hong Kong operated by chained and individual tutoring centres has kept increasing from 726 in the school year 2005/2006 to 923 in the school year 2009/2010, representing CAGR of approximately 6.2%. According to the Synovate Report, such increase was mainly due to the increase in the number of chained tutoring branches by 176 from 141 in the school year 2005/2006 to 317 in the school year 2009/2010. The market share of chained tutoring sector in terms of number of branches in Hong Kong enlarged to about 34% in the school year 2009/2010 compared to about 19% in 2005/

6 (b) Students taking secondary tutoring courses The following chart shows the total number of students taking secondary tutoring courses in Hong Kong from the school year 2005/2006 to 2009/2010 and the forecast number from the school year 2010/2011 to 2014/2015: Number of Secondary tutoring students Note: Number of tutoring teachers include both full-time and part-time teachers teaching secondary students. The number of students taking secondary tutoring courses in Hong Kong grew at CAGR of 6.8% from 282,200 in the school year 2005/2006 to 366,700 in 2009/2010, while the number of chained tutoring students grew at CAGR of 8.3% during the same period. In the school year 2009/2010, there were about 262,200 chained tutoring students in Hong Kong, representing an increase of about 12% or 28,200 students from that last year, and accounting for about 57% of the total number of secondary school students in Hong Kong during the year. On the contrary, the number of individual chained tutoring students decreased by about 9.4% or 1,000 students in the school year 2009/2010 from that last year, which was estimated to be due to shift in demand to chained tutoring centres. According to the Synovate Report, after the launch of the 334 System, it is expected that the number of tutoring students will slightly decrease from the school year 2010/2011 to 2014/2015 because of the decrease in the number of secondary school students. However, it is expected that the market is shifting to favor the expansion of chained tutoring centres as they are more financially capable to cope with the rapid change of the market. 79

7 (c) Market value of secondary tutoring sector According to the Synovate Report, the market value of the secondary tutoring business in Hong Kong, being value for tutoring service including all secondary tutoring business that follows the local curriculum by EDB and excluding other exam preparation courses and one-to-one private tutoring services, was approximately HK$1,984 million, representing a CAGR of approximately 13.5% from the school year 2005/2006 to 2009/2010. Market value of chained tutoring sector increased significantly at CAGR of about 13.7% during the period, accounted for about 69% of total market value of secondary tutoring sector in 2009/2010. Due to expected increase in fee of tutoring class, the market value of tutoring business in Hong Kong is estimated to reach HK$2,717 million in the school year 2004/2015. Private Secondary Schools Sector (a) Private secondary schools and branches The following graph shows the number private day and night secondary schools in total and day and night school branches in Hong Kong from the school year 2005/2006 to 2009/2010 and the forecast number from the school year 2010/2011 to 2014/2015: Number of private Secondary schools and branches Number of private secondary schools Number of private secondary branches Units / / / / / / / / / /15 School year 80

8 Notes: (1) Private secondary schools in Hong Kong counted are the private local day and evening secondary schools which are not administered or funded by the government. Students tuition fees are their main financial sources. They provide secondary courses according to the guidelines of the local curriculum by EDB. (2) Figures are as at mid-september of the respective school years and include private independent schools and other private schools, but exclude direct subsidy scheme schools, English schools foundation schools and international schools. (3) A private secondary school operating more than one session (full-time, morning session, afternoon session) is counted as one location. (4) School locations with registration function but without classes on the site are excluded. There was a declining trend in the total number of private secondary school in Hong Kong from the school year 2005/2006 to 2009/2010 which, according to the Synovate Report, was mainly due to the decrease in the number of night school, particularly in the school year 2008/2009 when the government pledged a 12-year free education. The total number of private secondary branches in Hong Kong also decreased from 75 in the school year 2005/2006 to 67 in 2007/2008 but rebounded to 74 in the school year 2009/2010 due to the increase in the number of day branches. Besides, the number of branches operated by tutoring service provider represented about 24% of the total number in the school year 2009/2010 compared to about 18% in the school year 2006/2007. (b) Private secondary school students The following graph shows the number of private secondary school students in Hong Kong from the school year 2005/2006 to 2009/2010 and the forecast number from the school year 2010/2011 to 2014/2015: Number of private secondary school students in Hong Kong Persons 21,000 19,000 16,000 13, / / / / / / / / / /15 School year 81

9 Notes: (1) Private secondary schools in Hong Kong counted are the private local day and evening secondary schools which are not administered or funded by the government. Students tuition fees are their main financial sources. They provide secondary courses according to the guidelines of the local curriculum by EDB. (2) Figures are as at mid-september of the respective school years and include private independent schools (PIS) and other private schools, but exclude direct subsidy scheme schools, English schools foundation schools and the international schools. (3) A private secondary school operating more than one session (full-time, morning session, afternoon session) is counted as one location. (4) School locations with registration function but without classes on the site are excluded. As shown in the chart above, the number of private secondary school students in Hong Kong increased from 13,977 in the school year 2005/2006 to 18,373 in the school year 2009/2010, of which about 72% were day school students and 28% were night school students. According to the Synovate Report, the number of private secondary students is expected to rebound to 19,000 in the school year 2011/2012 with the presence of new students and the last cohort of students sitting for the last HKALE & HKASLE. (c) Market value of private secondary schools The market value of private secondary education increased at the CAGR of 7.2% from approximately HK$234.2 million in the school year 2005/2006 to approximately HK$308.9 million in the school year 2009/2010 because of the increase in the number of student enrolment. Synovate forecast that the market value will reach approximately HK$339.3 million in the school year 2012/2013 because of the expected increase in school fees. PRIMARY EDUCATION IN HONG KONG Primary Tutoring Sector (a) Primary tutoring branches About 85% of the total number of secondary tutoring centres in Hong Kong also offer primary education services to students. To maximize centre utilization, tutoring centres in Hong Kong mainly operate morning courses for primary education and afternoon/evening sessions for secondary education. 82

10 The following graph shows the number of primary tutoring branches in Hong Kong from the school year 2005/2006 to 2009/2010 and the forecast number from the school year 2010/2011 to 2014/2015: Number of primary tutoring branches in Hong Kong Units / / / / / / / / / /15 School year Notes: Figures are as at September of the respective school years. The number of primary tutoring branches in Hong Kong amounted to 865 in the school year 2009/2010, compared to 823 in the school year 2008/2009, representing CAGR of approximately 5.6% from the school year 2005/2006 to 2009/2010. It is forecast that the number of primary tutoring branches will peak in 2011/12 due to the fast expansion of chained tutoring centres but decline as a whole thereafter as individual tutoring centres struggle to operate. (b) Primary school students According to Synovate Report, there were approximately 344,748 primary school students in Hong Kong in the school year 2009/2010, representing a decrease of approximately 5.9% from that in the school year 2008/2009. (c) Market value of Primary Tutoring Sector The market value of primary tutoring business in Hong Kong had been increasing at CAGR of about 2.9% from approximately HK$116 million in the school year 2005/2006 to approximately HK$130 million in the school year 2009/2010. In the school year 2009/2010, about 14% of primary school students in Hong Kong were tutoring students, compared to approximately 12% in the school year 2008/

11 The market value of the primary tutoring business is expected to increase at CAGR of about 5.4% from the school year 2010/2011 to 2014/2015 due to the expected increase in fee and kinds of service provided by tutoring centres. The 334 System is not expected to have exhibit direct impact on primary tutoring services as business because primary students emphasis in interest learning instead. MARKET DRIVERS OF PRIMARY AND SECONDARY TUTORING SECTOR IN HONG KONG Increase in pressure from the one-off public examination under the 334 System, the HKDSE, and the introduction of new core subjects and the fierce competition of university entrance are expected to drive students to start purchasing tuition services earlier. Besides, the increasing demand for enhancing English standard urges the growth of English tuition and English testing/examination preparation courses. PRIVATE ENGLISH LEARNING MARKET IN THE PRC (a) Private English learning institutes and branches in the PRC The number of English test takers increased rapidly at CAGR of 15% from the school year 2005/2006 to 2009/2010. The following graph shows the number of private English learning branches in the PRC from the school year 2005/2006 to 2009/2010 and the forecast number from the school year 2010/2011 to 2014/2015: Number of private English learning branches in the PRC 84

12 According to the Synovate Report, in response to the increase in number of test takers, the number of private English learning branches increased from 3,415 in the school year 2005/2006 to 4,400 in 2009/2010, and is forecast to increase to 6,284 in the school year 2014/2015, resulting in a CAGR of 7% from the school year 2005/2006 to 2014/2015. The number of private English learning chained branch is expected to grow more rapidly and at a CAGR of more than 20% from the school year 2005/2006 to 2014/2015 because chained branch can copy their businesses at a very low cost through franchise, and a lot of joint venture chained institutes start investing in the English learning and training market. (b) Private English learning institute students in the PRC The following graph shows the number of private English learning institute students in the PRC from the school year 2005/2006 to 2009/2010 and the forecast number from the school year 2010/2011 to 2014/2015: Number of private English learning institute students in the PRC As shown in the graph above, the number of private English learning institute students in the PRC increased at a CAGR of 10.4% from approximately 1.87 million in the school year 2005/2006 to 2.78 million in the school year 2009/2010. Synovate forecast that the number of students will increase at a CAGR of 10.9% from the school year 2005/2006 to 4.73 million in the school year 2014/2015 in light of the expected increase in the number of college graduates from approximately 2.50 million in the school year 2004/2005 to approximately 4.79 million in the school year 2007/2008. Employment pressure on college students drives many Chinese parents to feel that a foreign degree and the high English capability are the key to obtain a desirable and well-paid job. 85

13 (c) Market value of private English learning business in the PRC From year 2005 to 2009, the number of students studying abroad from China grew at a CAGR of 17.9%. While English proficiency qualification is needed for both school admissions and job applications, the demand for the English learning is growing rapidly in the PRC and it is expected that the market value will grow at the rate of 20.3% to approximately RMB6,523 million in the school year 2010/2011, compared to that of approximately RMB5,422 million in the school year 2009/2010. IELTS and TOEFL are believed to be the two most popular foreign English proficiency tests in the PRC for the application of overseas school entrance. In the school year 2009/2010, approximately 1.4 million people took the IELTS all over the world, of which approximately 21.4% or 0.3 million people were in the PRC, which were about 15% more than those in Meanwhile, the number of TOEFL test takers in the PRC also increased by approximately 30% from approximately 100,000 in the school year 2008/2009 to approximately 130,000 in the school year 2009/2010. COMPETITION LANDSCAPE We are principally engaged in providing tutoring services in our chained tutoring centres in Hong Kong. Revenue contributed by our secondary tutoring services accounted for approximately 93.4%, 90.1%, 87.3% and 80.5%, respectively, of our total revenue for the Track Record Period. According to the Synovate Report, there were a total of 45,683 secondary tutoring center capacity in Hong Kong as at 31 May 2011, of which about 54% and 46% were operated by chained tutoring centres and individual tutoring centres respectively. As at 31 May 2011, a maximum number of 4,137 pupils were permitted in the ME Centres, which represented approximately 9.1% of the total secondary tutoring centre capacity in Hong Kong and approximately 16.8% of the capacity run by chained tutoring centre. 86

14 Set forth below is the top six secondary tutoring service providers in Hong Kong as of 31 May 2011, in terms of number of and maximum number of students permitted in the (including laboratory) as announced by EDB based on name search, according to which we were the largest tutoring service providers. Rank Service provider Number of centre Number of Maximum number of students permitted in the 1 Our Group # ,614 2 Group A ,466 3 Group B ,028 4 Group C ,361 5 Group D Group E # Including ME Centres, MBE Centres and MBE Franchised Centres Set out below are further ranking of the secondary tutoring service providers in Hong Kong in terms of the number of and maximum legal capacity (including laboratory) as of 31 May 2011 which can be used for provision of (i) secondary tutoring services; (ii) primary tutoring services; or (iii) private day school education services, respectively: (i) Secondary tutoring services Rank Service provider Number of centre Number of Maximum number of students permitted in the 1 Our Group ,614 2 Group A ,466 3 Group B ,028 4 Group C ,361 5 Group D Group E

15 (ii) Primary tutoring services Rank Service provider Number of centre Number of Maximum number of students permitted in the 1 Our Group ,614 2 Group A ,371 3 Group F Group E Group G Group H (iii) Private secondary day school education Rank Service provider * Number of day school Number of Maximum number of students permitted in the 1 Group A ,368 2 Group B ,028 3 Our Group ,498 4 Group C Group I Group J * Including secondary tutoring services providers which also provide private secondary day schools education services We face competition mainly from other chained private education institutions, individual tutoring centres and individuals who provide one-to-one private tuition services in Hong Kong. We believe that the main key competing factors in our business, which has been disclosed in the section headed Business of this prospectus, include the following: Brand recognition; Quality of services; Flexibility and variety of programmes and services; Location of learning centres; Tuition fees; and Ability to effectively market programmes and services to a broad base of prospective students. 88