OFFCN Education's Predicament: Frozen Shares Are Only the Surface, Real Crisis Lies in Industry Competition and Strategic Lag

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Zhonggong Education (002607.SZ), the controlling shareholder’s share freeze controversy continues to escalate. On March 6th, the company announced that 184 million shares held by controlling shareholder Li Yongxin were placed under a waiting freeze by the Haidong Intermediate People’s Court in Qinghai Province, involving approximately 139.5 million yuan. On March 10th, the company responded collectively on the interactive platform to market concerns, clarifying that there are no plans to change management, while also warning of potential control stability risks under high pledge and freeze ratios of the controlling shareholder.

As a former leader in public exam training, Zhonggong Education’s share freeze is not an isolated incident but a result of multiple factors including its debt pressure, operational difficulties, and industry restructuring. This article will analyze Zhonggong Education’s current survival challenges and potential breakthroughs from three perspectives: core events, industry comparison, and risk projection.

Event Recap

1.84 Billion Shares Frozen Again, Full Control Restricted

The freeze involves 183.8866 million shares held by Li Yongxin, accounting for 21.92% of his personal holdings and 2.98% of the company’s total shares. The waiting period is 36 months, and the case stems from a dispute over a loan contract with creditors. While this appears to be a judicial action triggered by a single debt dispute, it actually reflects long-term funding chain pressures on the controlling shareholder.

Combined with previous multiple share freezes and pledges, Li Yongxin’s equity is now fully restricted, with ongoing risk exposure:

• Pledged shares total 623 million, representing 61.84% of his holdings and 10.10% of total shares;

• Judicial frozen and marked shares total 864 million, representing 85.74% of his holdings and 14.01% of total shares;

• Waiting frozen shares total 1.373 billion, representing 136.26% of his holdings and 22.26% of total shares, far exceeding his actual holdings. If new debt disputes arise, his shares could face further freezing.

The company’s announcement clearly states that this waiting freeze will not significantly impact operations or governance but also candidly warns: the controlling shareholder’s debt burden is heavy, and if debts cannot be repaid with non-equity assets, his shares may be subject to judicial disposal, posing control risks. This “seemingly harmless but hidden danger” reflects the company’s passive position—needing to soothe market sentiment while unable to avoid core risks.

Industry Comparison

Rebuilding the “Big Three” in Public Exam Training, Zhonggong Falls Behind

Zhonggong Education’s difficulties are closely tied to the overall transformation of the public exam training industry. Currently, the market features “rigid demand, intensified competition, and reshaped landscape,” with Zhonggong caught in a “revenue lag and strategic lag” dilemma against competitors Huatu and Chalk. The recent debt crisis of its controlling shareholder worsens its situation.

(1) Industry environment: strong demand but tighter competition, profit margins shrinking

The demand for public exam training remains robust. In 2026, the number of candidates approved in the national exam exceeded 3.7 million, with a ratio of about 74:1, surpassing graduate exam applicants for the first time. Peak seasons for provincial exams, public institutions, and teacher recruitment are approaching, with the overall vocational education market expected to exceed 2.2 trillion yuan, growing at 18%-28% annually. However, after three years of price wars, average prices have declined, and phenomena like “exorbitant guaranteed classes” have been rectified. Many training institutions, especially small and medium-sized ones and individual studios, have entered the market, leading to oversupply and accelerated industry reshuffling.

More critically, AI technology iteration is reshaping industry competition logic. Leading institutions are increasing R&D investment to upgrade teaching models, which is a key area where Zhonggong is falling behind its competitors.

(2) The “Big Three”: Zhonggong’s revenue lags, competitors form alliances to exert pressure

Historically, Huatu, Chalk, and Zhonggong have formed a “leader-follower” pattern: Zhonggong leading, Huatu close behind, Chalk breaking through. Since 2025, this pattern has been broken. Based on revenue in the first half of 2025, the ranking is Huatu (17.1 billion yuan), Chalk (14.92 billion yuan), Zhonggong (11.55 billion yuan). Zhonggong’s revenue has fallen behind its rivals and the gap continues to widen.

More unfavorably, in December 2025, Huatu and Chalk formed a strategic alliance, combining “online traffic + offline channels”—Huatu has over 1,000 offline delivery bases and is expanding local base plans; Chalk, with over 70 million registered users and rich online experience, is leveraging resource complementarity to counter regional competition and curb industry price wars, boosting overall gross margins.

In contrast, Zhonggong’s strategic transformation is slow: Huatu’s R&D expenses from January to September 2025 reached 145 million yuan, up over 160% year-on-year, launching 20 AI teaching products and building a “student-content-tool” integrated layout; Chalk also launched multiple AI-powered teaching products based on its self-developed large AI model. Zhonggong, despite launching the “Zhonggong AI Employment Learning Machine” in 2025 with AI course penetration reaching 35%, remains slower in transformation and struggles with R&D investment due to financial pressures, placing it in a passive position in AI-enabled education.

(3) Core gaps: insufficient cash flow and strategic focus

Compared to Huatu and Chalk, Zhonggong’s core weaknesses are evident: Huatu focuses on offline expansion and AI R&D; Chalk emphasizes online growth and deepens AI integration. Both have achieved strategic focus. Zhonggong, however, has attempted to pivot toward “employment and re-employment services” and AI vocational education but has been hampered by debt pressures and resource dispersion, lacking core competitiveness.

Financially, Zhonggong’s cash holdings by the end of Q3 2025 were only 104 million yuan, while short-term liabilities reached 1.055 billion yuan, with a current ratio of just 0.09, indicating weak short-term repayment ability. Huatu and Chalk, with healthier financial structures, can sustain ongoing R&D and channel investments, further widening the gap.

Risk Projection

Multiple risks intertwined, the path to breakthrough is fraught

Considering Zhonggong’s current operations, controlling shareholder debt pressures, and industry competition, the company faces a complex mix of “control risk, operational risk, and industry competition risk.” Different scenarios could lead to divergent development paths.

(1) Major risk one: control stability risk (high probability)

Li Yongxin’s pledged and frozen shares are extremely high, with waiting frozen shares far exceeding his actual holdings. If he cannot raise funds through non-equity asset disposal to settle debts, his shares could be auctioned or transferred judicially, leading to a change in control.

Scenario analysis:

• Optimistic: Li Yongxin disposes of long-term assets successfully, gains investment income, repays debts, and gradually lifts freezes, maintaining control; however, short-term liquidity remains tight.

• Neutral: Some shares are judicially disposed, reducing his holdings significantly, losing absolute control, and the company introduces new strategic investors. Management remains relatively stable, focusing on recovery.

• Pessimistic: Large-scale share disposals lead to fundamental control change, with new controllers possibly adjusting company strategy or divesting non-core assets, causing operational volatility.

The company has stated “no management change plans,” but this depends on control stability; if control shifts, management adjustments are inevitable.

(2) Major risk two: operational and cash flow risks (ongoing)

Zhonggong’s operational difficulties have persisted, with 2025 showing significant pressure: net profit attributable to parent expected between 42.5 million and 55 million yuan, down 70%-77%; Q1-Q3 revenue was 1.657 billion yuan, net profit 91.996 million yuan, down 21% and 45%, respectively. Revenue decline exceeds industry average. Cost reduction and efficiency improvements have shown some effect (Q3 net profit increased 39.34% quarter-on-quarter), but the overall downward trend remains.

Scenario analysis:

• Optimistic: Focus on core public exam business, shrink non-core segments, scale AI teaching products, revenue gradually recovers, cash flow improves enough to cover debts, easing liquidity.

• Neutral: Revenue remains low, cash flow barely balances, requiring debt restructuring or shareholder loans, with slow recovery.

• Pessimistic: Industry competition intensifies, market share declines further, revenue drops, cash flow breaks down, risking default and business contraction.

Additionally, the 2026 AI vocational education initiatives via joint ventures are still in early stages, unlikely to generate short-term revenue and may increase capital expenditure, worsening cash flow.

(3) Major risk three: industry competition (long-term)

The alliance between Huatu and Chalk has created a clear pressure on Zhonggong, shifting the landscape from “one dominant, multiple strong” to “three-legged race.” As competitors integrate online and offline resources and advance AI technology, industry pricing power will further concentrate among top players. If Zhonggong cannot quickly enhance core competitiveness, it risks losing market share.

Scenario analysis:

• Optimistic: Zhonggong leverages industry price war opportunities, accelerates AI transformation and core business upgrades, relies on government and university resources, maintains high-end employment services, and gradually narrows the gap.

• Neutral: Maintains current market share, seeks breakthroughs in niche segments, but cannot challenge Huatu and Chalk’s alliance, remaining mid-tier.

• Pessimistic: Fails to adapt to industry changes, market share shrinks, becomes marginalized, and falls to a secondary brand.

Breakthrough Path

Debt resolution and strategic focus are the only options

Overall, Zhonggong’s core issues are “debt pressure + strategic lag.” To escape difficulties, it must combine “debt resolution” with “strategic focus,” tackling both simultaneously.

First, controlling shareholders should accelerate asset disposals and debt restructuring to ease liquidity. The company has already completed 206 million yuan of debt restructuring, with some debts extended and interest rates lowered. Appointing dedicated personnel to manage debt resolution is ongoing. Continued market-oriented restructuring, optimizing financial structure, and reducing interest-bearing debt are essential to prevent further share disposals and maintain control.

Second, the company must focus on its core public exam business, shrink non-core operations, increase R&D investment, and accelerate AI transformation. Learning from Huatu and Chalk, integrating AI with teaching to improve efficiency and user experience, while optimizing offline channel deployment, avoiding blind expansion, and leveraging brand reputation, will help regain market trust.

Additionally, industry policy support offers opportunities. The Ministry of Education’s 2026 policy aims to promote high-quality vocational education, and relaxed age limits for national exams expand the candidate pool, creating new growth points for public exam training. Zhonggong should seize this opportunity to convert policy dividends into actual business growth.

Conclusion

The recent waiting freeze of controlling shareholder’s shares reflects Zhonggong Education’s debt predicament and industry upheaval. Once a leader in public exam training, Zhonggong now faces “control pressure, operational decline, and competitive lag.” The path to breakthrough is challenging.

In the short term, debt resolution and control stability are critical; in the long term, strategic focus and AI transformation are key to revival. Ongoing monitoring of debt restructuring, core business recovery, and industry dynamics will be essential. Whether Zhonggong can escape its predicament and turn the tide depends on its strategic execution and external factors like industry environment and policy guidance. This battle for revival is destined to be arduous.