China is expecting over 6.3 million students to graduate from University in 2010, creating intense competition for white collar jobs. This combined with the already fierce competition between individuals to get a leg up in the corporate workplace has led to an exploding test market for professional licenses and certifications. ATA Inc is the largest provider of testing administration and services focusing on various industries, including information technology, banking, teaching, securities, insurance and accounting. The China Perspective sat down with ATA Inc CFO, Mr. Carl Yeung, to learn more about ATA Inc and China's expanding market for testing services.
Can you give us a broad overview of ATA's business?
ATA is the leading provider of computer-based testing services in China. We offer comprehensive services for the creation and delivery of computer-based tests based on our proprietary testing technologies and test delivery platform. Our computer-based testing services are used for professional licensure and certification tests in various industries, including information technology, banking, teaching, securities, insurance and accounting. Our test center network comprised 1,951 authorized test centers located throughout China as of June 30, 2009, which we believe is the largest test center network of any commercial testing service provider in China. Combined with our test delivery technologies, this network allows our clients to administer large-scale nationwide tests in a consistent, secure and cost-effective manner. We have delivered over 30.7 million tests including 20.6 million billable tests since we commenced operations in 1999, and in June 2008 we delivered tests to approximately 470,000 test takers over a single weekend for the China Banking Association.
Currently, majority of our revenues comes from the financial industry. We have continued to benefit from the large-scale implementation of computer-based testing for the banking, securities and futures industries in China. Our first quarter 2010 results are very close to the top end of our guidance due to strong test-taker volume for tests we delivered for the China Banking Association and the Securities Association of China. Although the global financial crisis affected the overall Chinese economy in the second half of calendar year 2008 through the first half of calendar year 2009, we did not experience declines in our testing services attributable to the crisis. Our net revenues from testing services provided to the China Banking Association, the Securities Association of China and the China Futures Association grew to an aggregate of RMB108.9 million in the fiscal year ended March 31, 2009 from RMB55.9 million in the fiscal year ended March 31, 2008. The number of tests delivered for these three clients increased to 2.4 million in the fiscal year ended March 31, 2009 from 1.1 million in the fiscal year ended March 31, 2008. This increase was due to increased regulatory requirement for new licensure programs as well as strong voluntary demand from industry professionals to seek professional qualification as a differentiator in a tightened job market.
In the near term, we expect the financial industry will continue to be a major market for us, and we also expect increasing revenue contribution from TOEIC and HR Select.
This March, the company signed an agreement of cooperation with Educational Testing Services (ETS), the world’s largest educational research and assessment organization, whereby ATA will be the exclusive agent for ETS’s Test of English for International Communication (TOEIC®) business in China. This important strategic alliance between ATA and ETS will provide millions of Chinese English language learners with access to high quality testing services using ATA’s proven testing technology and broad distribution reach, and will help establish an authoritative assessment standards framework for professional English in China. For our first quarter 2010 ended at June 30, 2009, the TOEIC contributed RMB6.4 million to net revenue in our first full quarter as distributors, with average revenue per test of RMB237, the highest average revenue per test among all of ATA's tests.
In March, the company launched personnel selection solution HR Select to assist enterprises in China to achieve low-cost, high efficiency, high precision talent evaluation and selection. HR Select is an innovative and comprehensive solution for talent selection based around ATA’s testing service. Through intelligent resume analysis, the solution can screen, filter and manage eligible resume data through a process that is flexible, fast and accurate. The core of HR Select solution is the bundling of test tools designed around competency models, providing enterprises with our market leading test service to assess and select the right candidate, systematically reducing risk of wrong hiring. In developing this solution ATA has conducted research on 150,000 different job skill sets, covering several areas of competency, including IT, foreign languages, finance, accounting, management, and legal. ATA has also cooperated with leading institutions such as ETS and SHL to set up test items covering 600 positions with 1,000 evaluation modules and test item bank containing millions of test questions. So far, we have registered 10,000 companies with trial accounts and expect to start generating revenue from HR Select in the second quarter of fiscal year 2010.
The Test of English for International Communication (TOEIC) is "an English language test designed specifically to measure the everyday English skills of people working in an international environment." TOEIC is also called Business TOFEL in China. Though TOEIC only entered the Chinese market in 2002, it has become a major English test title in China for professionals who look for jobs at reputable and high paying international companies. There are about 70,000 people participating in the TOEIC test every year in China. We believe this number has room to grow as TOEIC volume in Korea is approx 2 million people a year. With over 100 million Chinese studying English on an annual basis and using Korea as a leading indicator, we believe there is substantial growth potential for this leading English assement test title in the Chinese market.
On February 28, 2009, ATA completed the acquisition of the entire equity interest of Beijing Jindixin Software Technology Company Limited, or Beijing Jindixin, and its parent company, JDX Holdings Limited. The acquisition is expected to expand our business by allowing us to market test delivery services to test sponsors that are using software developed by Beijing Jindixin. JDX and its subsidiaries have developed strong relationships with many government entities and state owned enterprises to help them with computerized test management and question database software. However, without the test service technologies to operate tests, they do not have any delivery capabilities. With the integration of JDX into ATA, we expect to generate customer synergies by offering test delivery services to JDX’s customers.
The Company has the largest network of test centers with 1,951 locations in China, which combined with its E-testing platform allows us to deliver secure, cost-effective, accurate, easy-to-manage large scale tests simultaneously to multiple locations. There are currently no other commercial test service providers other than ATA. The reason is these test centers serve as a significant entry barrier. It takes up to 3 months to install client software, optimize this software, run and re-run trial tests before each center is fully authorized to become commercially operational. Therefore, it takes a long time to accumulate a center network of this scale, and without this scale, one cannot get these large nationwide test contracts. The reason is that large scale test sponsors in China require broad geographic access: if a test taker in a remote province or city wants to register and take a government standardized test, then we have to have a location there available.
Current utilization rate is approximately at 7% on peak test volume and we are running well under full-capacity. However, we do need this number of centers to win contracts because of the need to make the tests accessible to candidates throughout China. We do plan to add 10-20 test centers per year from this point on to continue to expand our reach and provide more locations and more convenience to test takers in China.
The key growth driver for ATA is number of tests delivered. In this case, we work with our existing customers to increase public awareness of these test titles’ availability. In addition, we work with our customers to add new test titles every year as job skills become more specialized. For example, we have recently worked with the securities industry to introduce the Fund Sales Professional test title to address the growth of professionals in this specialized area. The largest opportunity remains the testing market that has yet to computerize. Over 95% of tests conducted in China are on a paper and pencil basis so we work closely with clients such as Ministry of Finance, Health, Justice to turn their existing paper exams into computer format to be serviced by ATA.
We generally do not have price movements for titles we are servicing already. However, we do expect average revenue per test will continue to increase in the long term due to mix as we add more test targeting accountants, doctors and lawyers that tend to have higher average prices. In addition, volume increase in TOEIC would significantly increase our ASP as this title carries a very high revenue per test.