Investment Rating - The report maintains a **Buy** rating for New Oriental Education & Technology Group (9901 HK) with a target price of **HKD 80.00**, implying a potential upside of **25.2%** [2][4] Core Views - New Oriental continues to maintain its leading position in international education, with steady expansion in its education business [2] - The company's education business is expected to achieve a **24% CAGR** in revenue from FY2024 to FY2027, driven by ongoing margin optimization [2] - The offline teaching center expansion is progressing well, with a **6% QoQ increase** in Q1 FY2025, adding **60+ new centers**, primarily in Tier 1 and New Tier 1 cities [2][5] - The education business is valued at **20x P/E** for the 12 months ending February 2026, excluding contributions from Dongfang Zhenxuan [2] Financial Performance and Forecasts Q1 FY2025 Preview - Total revenue is expected to grow **33% YoY** to **USD 1.46 billion**, in line with the company's guidance of **31-34%** [3] - Non-Dongfang Zhenxuan revenue is projected to increase **33% YoY** to **USD 1.247 billion** [3] - Adjusted operating profit is estimated at **USD 320 million**, with an operating margin of **21.9%**, driven by a **2 percentage point improvement** in non-Dongfang Zhenxuan business margins [3] - Adjusted net profit is forecasted at **USD 259 million**, with a net margin of **17.7%** [3] Segment Performance - Overseas test preparation revenue is expected to grow **21% YoY**, high school revenue **27%**, university/adult education **26%**, and new businesses **52%** [3] - Gross margin is projected to improve to **58%**, up **2.5 percentage points** from the previous forecast [4] Long-Term Forecasts - Revenue is expected to grow from **USD 4.314 billion** in FY2024 to **USD 7.646 billion** in FY2027, with a **24% CAGR** [6] - Adjusted operating profit is forecasted to increase from **USD 473 million** in FY2024 to **USD 1.196 billion** in FY2027 [6] - Adjusted net profit is projected to rise from **USD 381 million** in FY2024 to **USD 1.043 billion** in FY2027 [6] Industry and Peer Comparison - The report covers multiple companies in the internet and education sectors, with **Buy** ratings for peers like TAL Education (TAL US) and Gaotu Techedu (GOTU US) [8] - New Oriental's valuation and growth prospects are highlighted as favorable compared to its peers in the education sector [8]

Group 1 - New Oriental Education & Technology Group Inc (EDU) shares increased by 1.83% on October 2, reaching an intraday high of $87.26 before closing at $78.60, which is 19.96% below its 52-week high of $98.20 and 37.39% above its 52-week low of $57.21 [1] - The trading volume for EDU was 3,558,206 shares, which is 162.3% of the average daily volume of 2,192,581 shares [1] Group 2 - Wall Street analysts have set an average one-year price target for EDU at $93.04, indicating an upside potential of 18.37% from the current price of $78.60 [2] - The highest price estimate from analysts is $110.81, while the lowest is $75.00 [2] - The average brokerage recommendation for EDU is 1.6, suggesting an "Outperform" status on a scale where 1 is Strong Buy and 5 is Sell [2] Group 3 - GuruFocus estimates the fair value (GF Value) for EDU at $82.31 in one year, suggesting a potential upside of 4.72% from the current price [2] - The GF Value is derived from historical trading multiples, past business growth, and future performance estimates [2]

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Group 1: New Oriental Education (EDU) - New Oriental Education shares increased by 7.9% to close at $65, following a 7.5% loss over the past four weeks, indicating a notable recovery in stock performance [1] - The recent rally is attributed to optimism from a fiscal stimulus announced by the People's Bank of China, which includes interest rate cuts and additional funding opportunities, potentially boosting business activities and consumer confidence [1] - The upcoming quarterly earnings report is expected to show earnings of $1.14 per share, reflecting a year-over-year increase of 0.9%, with revenues projected at $1.4 billion, a 27.1% increase from the previous year [1] Group 2: Earnings Estimate Revisions - The consensus EPS estimate for New Oriental has been revised down by 58.7% over the last 30 days, which typically correlates with negative stock price movements [2] - Despite the recent stock price increase, the negative trend in earnings estimate revisions suggests caution regarding future price appreciation [2] - New Oriental currently holds a Zacks Rank of 3 (Hold), indicating a neutral outlook [2] Group 3: Perdoceo Education (PRDO) - Perdoceo Education's consensus EPS estimate remains unchanged at $0.53, representing a 17.2% decrease from the previous year [3] - Perdoceo Education has a Zacks Rank of 4 (Sell), indicating a negative outlook compared to its peers [3]

Financial Performance and Results - New Oriental Education & Technology Group Inc. reported its audited annual results for the fiscal year ending May 31, 2024[1] - Net revenue for FY2024 reached $4,313.586 million, with net service revenue at $3,500.998 million and net product revenue at $812.588 million[33] - Operating profit for FY2024 was $350.425 million, compared to a loss of $982.513 million in FY2022[33] - Net profit for FY2024 was $325.218 million, a significant improvement from a net loss of $1,220.276 million in FY2022[33] - Total operating costs and expenses for FY2024 were $3,963.161 million, with revenue costs at $2,050.960 million and sales and marketing expenses at $660.586 million[33] - Interest income for FY2024 was $153.589 million, while interest expenses were only $0.298 million[33] - The company's effective tax rate for FY2024 was approximately 25.2%, with current tax provisions at $130.927 million and deferred tax provisions at $21.237 million[33] - Basic earnings per share for FY2024 were $0.19, compared to a loss of $0.70 per share in FY2022[33] - Weighted average shares outstanding for basic EPS calculation in FY2024 were 1,653,597,432[33] - The company's intangible assets and goodwill impairment losses were zero in FY2024, compared to $31.794 million in FY2021[33] - Total share-based compensation expenses for FY2024 were $122.458 million, with general and administrative expenses accounting for $76.439 million of that total[33] - Cash and cash equivalents increased from $915.057 million in 2020 to $1,662.982 million in 2023, but decreased to $1,389.359 million in 2024[35] - Total assets grew from $6,556.885 million in 2021 to $7,531.673 million in 2024[35] - Total liabilities increased from $3,687.074 million in 2020 to $3,482.659 million in 2024[35] - Total equity rose from $2,869.811 million in 2020 to $4,049.014 million in 2024[35] - Third-party net revenue for 2024 was $4,313.586 million, up from $2,997.760 million in 2023[36][37] - Operating costs and expenses totaled $3,963.161 million in 2024, compared to $2,807.714 million in 2023[36][37] - Net profit for 2024 was $325.218 million, a significant improvement from a net loss of $1,220.276 million in 2022[36][37] - Other net income increased to $143.416 million in 2024 from $118.485 million in 2023[36][37] - Income tax provision for 2024 was $109.690 million, up from $66.066 million in 2023[36][37] - Cash and cash equivalents for consolidated affiliated entities in 2024 were $1,389.359 million[38] - Total assets increased to $7,531,673K in 2024 from $6,392,458K in 2023, reflecting a growth of 17.8%[39][40] - Total liabilities rose to $3,482,659K in 2024 from $2,577,670K in 2023, marking a 35.1% increase[39][40] - Total equity grew to $4,049,014K in 2024 from $3,814,788K in 2023, showing a 6.1% increase[39][40] - Net cash generated from operating activities was $1,122,643K in 2024, compared to $971,008K in 2023, a 15.6% increase[41][42] - Net cash used in investing activities was $1,153,922K in 2024, compared to $37,411K in 2023, indicating a significant increase in investment outflows[41][42] - Net cash used in financing activities was $160,438K in 2024, compared to $246,867K in 2023, showing a 35% decrease in financing outflows[41][42] - Deferred revenue increased to $1,780,063K in 2024 from $1,337,630K in 2023, reflecting a 33.1% growth[39][40] - Property and equipment net value increased to $507,981K in 2024 from $359,760K in 2023, a 41.2% increase[39][40] - Other non-current assets grew to $1,634,814K in 2024 from $1,618,811K in 2023, a slight increase of 1%[39][40] - Total current assets increased to $5,388,878K in 2024 from $4,413,887K in 2023, showing a 22.1% growth[39][40] - Net cash used in financing activities for the year ended May 31, 2023 was $246.867 million, compared to $230.858 million for the previous year[43] - Net cash generated from operating activities for the year ended May 31, 2022 was negative $1.280 billion[43] - Net cash generated from investing activities for the year ended May 31, 2022 was $1.169 billion[43] - Long-term investment fair value changes resulted in a loss of $0.9 million for the fiscal year ending May 31, 2023, and a gain of $19.0 million for the fiscal year ending May 31, 2024[77] Regulatory and Compliance Risks - The company has submitted a report on the effectiveness of internal control over financial reporting as required by Section 404(b) of the Sarbanes-Oxley Act[6] - The company faces risks related to competition in live-streaming e-commerce and the development of new educational products and services[13] - The company anticipates changes in revenue, costs, and expenses, influenced by market trends and regulatory policies in China[13] - The company's VIEs, including Beijing Xuncheng and New Oriental China, are consolidated into financial statements despite no direct equity ownership[9] - The company's forward-looking statements are based on expectations of future events, financial trends, and regulatory impacts in China[13] - The company operates in China through a series of contractual arrangements with variable interest entities (VIEs), including equity pledge agreements, exclusive option agreements, and service agreements[15][16][17] - The company's contractual arrangements for controlling variable interest entities (VIEs) are less effective than direct ownership, posing risks of conflicts and legal uncertainties[20] - Potential changes in Chinese laws and regulations could impact the enforceability of the company's contractual arrangements with VIEs, leading to severe penalties or loss of business interests[21] - The company faces risks related to regulatory approvals, antitrust actions, education industry regulations, and cybersecurity, which could affect its operations and stock value[21] - Chinese government oversight and control over overseas listings and investments could severely limit the company's ability to issue securities, potentially causing a significant drop in their value[22] - The company's Chinese subsidiaries and consolidated affiliated entities have obtained necessary licenses and permits, including private school operation permits, ICP licenses, EDI licenses, food business licenses, publication business licenses, performance business licenses, travel agency business licenses, and healthcare licenses[23] - The company is not currently required to obtain permits or complete filings with the China Securities Regulatory Commission (CSRC) or the Cyberspace Administration of China (CAC) for past securities issuances to foreign investors[24] - The company believes it is not subject to cybersecurity review by the CAC for maintaining its listing status on the NYSE under current Chinese laws and regulations[24] - The "Overseas Listing Trial Measures" require Chinese companies seeking overseas securities issuance to file with the CSRC, but companies listed before March 31, 2023, are not required to file immediately[24] - Future overseas securities issuances by the company may require filing with the CSRC, including follow-on offerings, convertible bond issuances, and relistings after privatization[24] - The Chinese government has expressed intentions to increase supervision and control over overseas issuances and foreign investments, creating regulatory uncertainty for the company[25] - Failure to obtain necessary approvals or changes in laws and regulations could result in penalties, including fines, suspension of operations, or revocation of licenses, severely impacting the company's ability to issue securities[25] - The company faces risks related to data privacy, protection, and cybersecurity regulations, which could lead to penalties, reputational damage, and adverse effects on its business operations[23] - The company may need to obtain additional licenses, permits, or approvals in the future due to potential changes in the interpretation and enforcement of laws and regulations[23] - Regulatory uncertainties and potential government oversight could significantly impact the company's operations and the value of its securities[25] - The company may be identified as a Commission-Identified Issuer under the HFCAA if PCAOB determines it cannot fully inspect or investigate accounting firms in China and Hong Kong, potentially leading to a trading ban in the U.S. if identified for two consecutive years[26] - The company's ability to pay dividends and repay debt depends on dividends from its Chinese subsidiaries and service fees from variable interest entities, which are subject to regulatory restrictions and Chinese accounting standards[27] - Chinese subsidiaries and variable interest entities face restrictions on transferring assets or dividends overseas, including foreign exchange controls and mandatory reserve allocations[28] - The company received loan repayments of $282.1 million, $290.0 million, and $1.5 million from indirect holding companies and subsidiaries in fiscal years 2022, 2023, and 2024, respectively[28] - The company provided loans of $330.4 million, $50.0 million, and $0 to indirect holding companies and subsidiaries in fiscal years 2022, 2023, and 2024, respectively[28] - The company has no formal dividend policy or cash management policy governing fund transfers between entities, relying instead on applicable Chinese laws and regulations[30] - Under a hypothetical tax scenario, the company's net distributable profit after a 25% corporate tax rate and 10% withholding tax would be 67.5% of pre-tax profit[31] - If variable interest entities' cumulative profits exceed fees paid to Chinese subsidiaries, non-deductible transfers may occur, reducing the company's after-tax income[31] - The company's operations in China are subject to Chinese laws and regulations, which can change rapidly with little notice, potentially impacting legal protections and compliance decisions[49] - The Chinese government's significant oversight and discretionary power over the company's operations could lead to major adverse changes in its operations and the value of its American Depositary Shares (ADS)[49] - Offshore offerings by the company may require approval or filing with the China Securities Regulatory Commission (CSRC) or other Chinese government agencies, with uncertain timelines and outcomes[50] - PCAOB's inability to inspect auditors in China could lead to the delisting of the company's ADS from U.S. exchanges under the HFCAA, significantly impacting investor value[50] - The company's ADS and ordinary shares have experienced and may continue to experience significant price volatility, potentially causing substantial losses for shareholders[51] - Negative reports by securities or industry analysts could lead to a decline in the price and trading volume of the company's ordinary shares and ADS[51] - Termination of K-9 academic tutoring services in China due to regulatory changes has had and may continue to have a significant adverse impact on the company's business, financial condition, and prospects[52] - The company closed 644 schools and learning centers, reducing the total number from 1,669 as of May 31, 2021, to 1,025 as of May 31, 2024, as part of its business restructuring[52] - The company's smart learning systems and devices may be classified as subject-based after-school tutoring activities, potentially requiring compliance with the "Double Reduction" policy and other regulations[58] - The company's revenue and profitability may decline if it fails to attract students without significantly reducing course fees[59] - The company faces risks of fines, operational suspensions, or other penalties if it fails to comply with the "Double Reduction" policy and related regulations[58] - The company may need to adjust its business operations further if new rules or regulations are introduced in China[58] - The company's ongoing license applications and existing permits could be negatively affected by regulatory non-compliance[58] - The company faces risks related to recent regulatory changes in the after-school tutoring services market[63] - The company's past financial performance may not be indicative of future results due to uncertainties in new business development and acquisitions[63] - The company has been involved in intellectual property infringement claims, including a 2001 case resulting in a RMB 6.5 million damages payment[65] - The company collaborates with international education content providers such as Cambridge University Press and Oxford University Press[65] - The company faces challenges in maintaining consistent teaching quality across its school network[62] - The company must provide competitive compensation to attract and retain qualified teachers in China[62] - The company's growth may be impacted by a limited pool of experienced teachers in China[62] - The company's operations are subject to Chinese laws requiring teachers to obtain necessary qualifications[62] - The company's acquisitions may not yield expected benefits and could negatively impact business management[64] - The company faces potential legal claims and disputes related to copyright infringement and unauthorized use of third-party names, which could lead to increased expenses, revenue loss, and reputational damage[66] - The company has invested over 20 years in building the "New Oriental" brand, emphasizing quality and consistency, but faces challenges in preventing unauthorized use of its trademarks and names by third parties[67] - The company operates in a highly competitive education industry in China, with competitors potentially having more resources and faster adaptability to market changes, which could impact student enrollment and profitability[67] - The company faces competition from online education providers using advanced technologies like live streaming, which may force the company to lower course fees or increase spending to remain competitive[67] - The company's profitability may be affected by intense competition from other live-streaming e-commerce participants with stronger financial and marketing resources[68] - The company's business operations could be significantly disrupted by infectious disease outbreaks, such as COVID-19, leading to temporary closures of schools and learning centers, impacting revenue and liquidity[70] - The company experienced a decline in gross and net profit margins due to regulatory developments in the after-school tutoring sector, with operating profit margins turning positive in FY2023 and improving in FY2024[71] - New investments and acquisitions may lead to a temporary decline in profit margins until the acquired businesses are fully integrated and synergies are realized[71] - The company's total revenue and operating performance are subject to seasonal fluctuations, with the highest revenue typically recorded in the first fiscal quarter (June 1 to August 31) due to increased student enrollment during summer[72] - The COVID-19 pandemic negatively impacted the company's financial and operating performance in the third and fourth fiscal quarters of 2020[72] - The company's American Depositary Shares (ADS) and ordinary shares experienced significant price declines following the release of the "Double Reduction" policy in July 2021[73] - The company's ADS and ordinary shares also saw a sharp decline after announcing the departure of a key figure and the sale of a subsidiary in July 2024[73] - The company faces risks from changes in exam materials, admission standards, and regulations, which could reduce the attractiveness of its courses and services[74] - The company may be required to take corrective measures or suspend training materials if it fails to comply with new curriculum and training material requirements[74] - A potential reduction in reliance on admission and assessment exams by higher education institutions could decrease demand for the company's services and products[75] - The company's deferred revenue, which represents prepaid tuition, may not reflect actual future revenue due to potential changes in customer preferences or service delivery[76] - Failure to fulfill obligations related to deferred revenue could adversely affect the company's operating performance and liquidity[76] - The company's new e-commerce platform under the "Oriental Selection" brand, launched in 2022, has shown significant progress in proprietary product sales and live-streaming e-commerce during the 2023 and 2024 fiscal years[78] - The "Yu Hui Tong Xing" live-streaming account, associated with star host Dong Yuhui, gained significant popularity since its launch in January 2024, leading to a broader consumer base[80] - In August 2024, "Yu Hui Tong Xing" ceased to be a consolidated affiliate of Oriental Selection, and its financial results were no longer included in Oriental Selection's consolidated financial statements[80] - The company's total net revenue for the fiscal year ending May 31, 2024, was largely derived from operations in Beijing, Hangzhou, Guangzhou, and Nanjing[80] - The company's OMO (Online-Merge-Offline) standardized digital classroom teaching system, developed in 2014, integrates offline schools and learning centers with online education systems to enhance operational efficiency[81] - The company faces risks in maintaining and expanding its market share due to rapid technological changes and unpredictable user preferences in the online education market[81] - The company relies heavily on star hosts for its live-streaming e-commerce business, and a decline in their popularity or inability to retain them could significantly impact gross merchandise value[80] - The company's ability to adapt to evolving student needs, technological advancements, and internet operations is critical for maintaining competitiveness in the online education market[81] - The company's reliance on unobservable inputs for fair value assessments of long-term investments introduces inherent uncertainty and subjectivity, which could significantly impact valuations[77] - The company maintains effective internal controls over financial reporting as of May 31, 2024, but cannot guarantee future effectiveness[82] - Lack of liability or business interruption insurance for some teaching facilities may expose the company to financial and reputational risks[83] - The company's online course infrastructure relies on elastic cloud computing to handle increasing student demand[83] - Multiple cloud data centers are used to ensure service continuity in case of damage to on-site computer centers[83] - The company has experienced multiple cyberattacks in the past, though none caused significant operational impact[84] - Data security measures are in place

Revenue and Financial Performance - Revenues from consolidated affiliated entities accounted for 99.6%, 99.5%, and 99.2% of total net revenues for fiscal years ended May 31, 2022, 2023, and 2024, respectively[17] - Net revenues for 2024 increased to $4,313.586 million, up from $2,997.760 million in 2023[39] - Operating income for 2024 was $350.425 million, compared to $190.046 million in 2023[39] - Net income attributable to shareholders for 2024 was $309.591 million, up from $177.341 million in 2023[39] - Third-party net revenues increased to $4,313.586 million in 2024, up from $2,997.760 million in 2023, reflecting a growth of approximately 43.9%[44][45] - Net income for 2024 was $325.218 million, compared to $235.363 million in 2023, showing a 38.2% increase[44][45] - Total operating costs and expenses rose to $3,963.161 million in 2024 from $2,807.714 million in 2023, an increase of 41.2%[44][45] - Income from subsidiaries and VIEs was $538.168 million in 2024, up from $313.226 million in 2023, a 71.8% increase[44][45] - Other income, net, rose to $143.416 million in 2024 from $118.485 million in 2023, a 21.0% increase[44][45] - Net revenues decreased from $3,105.2 million in FY2022 to $2,997.8 million in FY2023, then increased to $4,313.6 million in FY2024[86] - The company's operating margin turned positive for the fiscal year ended May 31, 2023, and continued to improve for the fiscal year ended May 31, 2024, but there is no assurance that this trend will continue[102] - The company experienced a loss from fair value change of long-term investments of US$0.9 million in the fiscal year ended May 31, 2023, but recorded a gain of US$19.0 million in the fiscal year ended May 31, 2024[113] Business Operations and Strategy - The company operates in China through PRC subsidiaries, VIEs, and their subsidiaries/schools, with contractual arrangements controlling business operations[17] - The company relies on contractual arrangements rather than direct ownership to control VIEs, which may pose risks in conflicts of interest or legal disputes[26] - The company is shifting focus towards non-K-9 educational products and services, including test preparation courses, overseas study consulting, and educational materials[68] - East Buy, the company's e-commerce platform, made notable progress in private label products and livestreaming e-commerce business in fiscal years 2023 and 2024[68] - East Buy established an e-commerce platform for agricultural and other products through livestreaming activities[68] - The company is exploring business opportunities in the culture and tourism market[68] - The company is investing in new business initiatives such as non-academic tutoring, intelligent learning systems, and study tours[68] - The company's East Buy e-commerce platform, established in fiscal year 2022, has made notable progress in private label product sales and livestreaming e-commerce business in fiscal years 2023 and 2024[115] - The company's OMO (online-merge-offline) system, developed in 2014, integrates offline and online education systems to enhance operational efficiency[122] - The company relies heavily on the popularity of celebrity livestreamers, particularly the "Time with Yuhui" brand, which gained significant traction since its inception in January 2024[118] - In August 2024, Time with Yuhui ceased to be a consolidated entity of East Buy, and its financial results are no longer included in East Buy's consolidated financial statements[118] - The company generates a significant portion of its revenues from key cities in China, including Beijing, Hangzhou, Guangzhou, and Nanjing, which are expected to remain important revenue sources[120] Regulatory and Legal Risks - The PRC government's oversight and regulations on foreign investment and overseas offerings could significantly impact the company's operations and securities value[28][30] - The company was listed as a Commission-Identified Issuer under the HFCAA in October 2022 but expects to avoid future identification due to PCAOB's updated inspection access[31] - The company faces uncertainties regarding PRC government approvals for future offshore offerings, which could result in penalties or business suspension[30] - The company faces risks related to the interpretation and implementation of PRC laws and regulations on private education[72] - The company may be required to take further actions regarding academic tutoring services for students in grade ten to twelve to comply with the Alleviating Burden Opinion[72] - The company faces risks from potential new regulations that could classify digital educational resources as after-school tutoring activities[76] - The company's historical financial results may not be indicative of future performance due to regulatory changes and new business developments[86] - The company faces risks related to cybersecurity, including potential data breaches and system disruptions, which could harm its reputation and financial performance[125][127] - The company is subject to PRC data security laws, including the PRC Data Security Law and Cybersecurity Review Measures, which may impose additional obligations if deemed a critical information infrastructure operator[130] - The company has applied for a security assessment by the Cyberspace Administration of China regarding the cross-border transfer of certain data, as required by the Measures on Security Assessment of the Cross-border Transfer of Data[133] - The company processes personal information of more than 1 million individuals, which subjects it to security assessments for cross-border data transfers[133] - The company may face penalties, fines, or suspension of services if it fails to comply with PRC advertising laws and regulations, which prohibit misleading content and superlative wording in advertisements[134] - The company's overseas test preparation and English language training courses could be adversely affected by geopolitical tensions, particularly between the U.S. and China, potentially leading to declines in student enrollments[136] - The company is currently defending against a putative shareholder class action lawsuit, the outcome of which could have a material adverse effect on its business, financial condition, and reputation[138] - The company may face penalties or suspension of operations if it fails to comply with PRC regulations governing internet access and information dissemination[208] - The company is required to obtain various operating licenses and permits in China, and failure to comply may result in fines, confiscation of gains, or suspension of operations[210] - PRC regulations on offshore special purpose companies may limit the company's ability to inject capital into its PRC subsidiaries or distribute profits[211] - Regulatory measures in China require PRC individuals participating in overseas share incentive plans to file applications with SAFE and remit foreign exchange income into a collective foreign currency account[213] - The company is in the process of making SAFE applications for PRC individuals participating in its share incentive plans, but cannot guarantee success, potentially leading to fines, legal sanctions, and restrictions on stock option exercises[214] - Offshore listings may require CSRC approval under PRC law, and failure to obtain or delays in obtaining such approval could result in fines, restrictions on dividend payments, and other sanctions[215] - PRC domestic companies listed overseas by March 31, 2023, are required to complete CSRC filing procedures for future securities offerings and listings outside mainland China[216] - PRC domestic enterprises seeking overseas securities offerings must establish confidentiality and archives systems and complete approval and filing procedures with competent authorities[218] - Future regulatory changes may impose additional requirements on the company's offshore offerings, potentially leading to fines, restrictions on dividend payments, and other adverse effects[219] Corporate Structure and Contractual Arrangements - The contractual arrangements include equity pledge agreements, exclusive option agreements, powers of attorney, and service agreements to secure economic benefits[18][19][20] - The company's founder and executive chairman, Michael Minhong Yu, owns 99% of Beijing Century Friendship Education Investment Co., Ltd[24] - The company's financial results include consolidated VIEs, with detailed financial data available in the annual report[34] - The company relies on contractual arrangements with variable interest entities (VIEs) for its education business, which may not provide as effective control as direct ownership[171] - The equity pledge agreements with VIEs' shareholders are registered, but PRC courts may limit the enforceability of these agreements[174] - The registered equity interests pledged to the company's subsidiaries for New Oriental China total RMB 50,000,000, representing 100% of its registered capital[175] - Potential conflicts of interest may arise between the company and the controlling shareholder of Century Friendship, which owns New Oriental China[177] - The company uses corporate chops, contract chops, and finance chops for executing legal documents, with approvals required from relevant departments[179] - The company's reliance on chops for legal documents may be subject to risks if custodians or authorized users fail to fulfill their responsibilities[178] - The company faces risks related to the misuse of corporate chops and seals by designated legal representatives, which could disrupt normal business operations and require significant time and resources to resolve[180] - The company's contractual arrangements with VIEs in China could be deemed non-compliant with PRC laws, risking severe penalties or loss of control[159][161] - Foreign ownership in entities providing value-added telecommunication services is restricted to 50% under PRC laws[161] - East Buy's online livestreaming business operates through contractual arrangements with Beijing Xuncheng to comply with PRC regulations[161] - The Alleviating Burden Opinion prohibits foreign capital from controlling or participating in Academic AST Institutions through VIEs[161] - PRC legal counsel confirms that the company's corporate structure and contractual arrangements comply with existing PRC laws and regulations[163] - Non-state capital is prohibited from controlling non-profit kindergartens through contractual arrangements, and community-affiliated kindergartens can only be registered as non-profit kindergartens[165] - The contribution of kindergartens to the company's total net revenues was less than 1% for fiscal years 2022, 2023, and 2024[166] - The company did not invest in or acquire for-profit kindergartens using capital market funds or stock/cash consideration after the promulgation of the Preschool Opinions[166] - The consolidated affiliated entities contributed 99.6%, 99.5%, and 99.2% of the company's total net revenues for fiscal years 2022, 2023, and 2024, respectively[173] Financial Position and Cash Flow - Total assets as of May 31, 2024, were $7,531.673 million, compared to $6,392.458 million in 2023[42] - Cash and cash equivalents as of May 31, 2024, were $1,389.359 million, down from $1,662.982 million in 2023[42] - Total liabilities as of May 31, 2024, increased to $3,482.659 million from $2,577.670 million in 2023[42] - Share-based compensation expenses for 2024 totaled $122.458 million, up from $89.788 million in 2023[39] - Cash and cash equivalents stood at $1,389.359 million as of May 31, 2024, compared to $940.643 million in 2023, a 47.7% increase[46][47] - Total current assets grew to $5,388.878 million in 2024 from $3,024.121 million in 2023, a 78.2% increase[46][47] - Deferred revenue increased to $1,780.063 million in 2024 from $1,775.131 million in 2023, a slight growth of 0.3%[46][47] - Total liabilities rose to $3,482.659 million in 2024 from $3,100.512 million in 2023, an increase of 12.3%[46][47] - Total equity increased to $4,049.014 million in 2024 from $1,125.023 million in 2023, a significant growth of 260.0%[46][47] - Total current assets for the Consolidated Affiliated Entities amounted to $2,396,815 thousand[48] - Total non-current assets for the Consolidated Affiliated Entities reached $1,218,899 thousand[48] - Total liabilities for the Consolidated Affiliated Entities stood at $2,742,334 thousand[48] - Net cash provided by operating activities for the Consolidated Affiliated Entities was $1,013,621 thousand[50] - Net cash used in investing activities for the Consolidated Affiliated Entities was $1,234,725 thousand[50] - Net cash used in financing activities for the Consolidated Affiliated Entities was $16,721 thousand[50] - Net cash provided by operating activities for the Consolidated Affiliated Entities in the previous year was $652,523 thousand[51] - Net cash used in investing activities for the Consolidated Affiliated Entities in the previous year was $294,911 thousand[51] - Net cash used in financing activities for the Consolidated Affiliated Entities in the previous year was $19,353 thousand[52] - Net cash used in operating activities was $1,280,453 thousand for the year ended May 31, 2022[54] - The company's deferred revenue recognition is subject to future performance obligations, and any failure to fulfill these obligations could adversely impact liquidity and results of operations[112] - The company's long-term and short-term investments are subject to fair value changes, with significant unobservable inputs that may lead to uncertainty and volatility in valuation[114] - The company's cash flow and liquidity could be adversely affected if it fails to comply with the restrictions and covenants in the trust deed related to its $300 million 2025 Notes[143] Tax and Dividend Policies - The company's PRC subsidiaries and VIEs may face a maximum statutory tax rate of 25% on earnings, with a 10% withholding tax on distributions[36] - If VIEs' accumulated earnings exceed fees paid to PRC subsidiaries, non-deductible transfers could reduce after-tax income[37] - The company does not have a dividend policy or cash management policies for fund transfers between entities[35] - PRC regulations require subsidiaries to set aside at least 10% of after-tax profits annually for statutory reserves, limiting the company's ability to distribute dividends[183] - The company's reliance on dividends from PRC subsidiaries for cash requirements may be limited by PRC regulations, affecting its ability to grow and make investments[183] - PRC government controls on currency conversion may restrict the company's ability to remit foreign currency for dividends or other payments, potentially limiting access to funds outside China[224] Competition and Market Risks - The company faces significant competition in the private education sector, particularly from online educational service providers using advanced technologies like live broadcasting, which may force the company to reduce course fees or increase spending to retain students[97] - The company's brand reputation is critical to its success, and any negative publicity could harm its business and operating results[82] - The company depends on maintaining consistent teaching quality and retaining qualified teachers, which could be impacted by regulatory requirements[84] - The company faces risks from intellectual property infringement claims, which could result in substantial damages and operational disruptions[90] - The company's trademarks and trade name are at risk of infringement by third parties, which could damage its reputation and brand, despite efforts to protect intellectual property rights[95] - The company's business is subject to seasonal fluctuations, with the highest revenue typically in the first fiscal quarter (June 1 to August 31) due to summer vacation enrollments[104] - The company faces risks related to health epidemics, such as COVID-19, which could lead to reduced attendance or temporary closure of schools and learning centers, adversely affecting liquidity and financial condition[101] - The company may experience a decrease in demand for its services if colleges and universities reduce reliance on admissions and assessment tests, particularly in China and the United States[110][111] - The Chinese economy's growth rate has gradually slowed since 2010, with COVID-19 having an adverse impact in 2022, potentially reducing demand for the company's products and services[196] - The global macroeconomic environment faces challenges, including geopolitical tensions and rising interest rates, which may negatively impact the company's business and financial condition[197] Operational and Compliance Risks - The company ceased offering K-9 Academic AST Services in China at the end of 2021, which had a substantial adverse impact on financial performance[66] - Company ceased K-9 Academic AST Services in all schools and learning centers in China by the end of 2021, leading to significant costs from lease terminations and employee layoffs[75] - Company incurred considerable costs and expenses in FY2022 due to regulatory compliance actions, including termination of leases and employee dismissals[75] - Company's ability to attract students without significant fee reductions is critical to maintaining profitability[78] - Company's net revenues are subject to fluctuations due to regulatory changes, economic conditions, and consumer spending patterns[86] - The total number of schools and learning centers decreased from 1,669 as of May 31, 2021 to 1,025 as of May 31, 2024[66] - The company has experienced several computer attacks in the past, though none have materially affected its operations[127] - The company does not have liability or business disruption insurance in some teaching facilities, which could lead to financial and reputational risks in case of accidents[124] - The company's internal control over financial reporting was deemed effective as of May 31, 2024, but future failures could adversely affect investor confidence and share prices[123] - The company may incur significant costs to protect against security breaches or comply with evolving data protection regulations, potentially impacting financial conditions[128][130] - The company has not been involved in any cybersecurity investigations or received any sanctions related to data security and personal data protection as of the date of the annual report[133] - The company may require additional capital to finance future developments, including new business initiatives, investments, or acquisitions, and may seek to sell additional equity or debt securities if necessary[140] - The company's ability to obtain additional capital is subject to uncertainties, including investor perception, market conditions, and PRC governmental regulations[141] - The company may face challenges in controlling rental costs and

Core Viewpoint - New Oriental Education & Technology Group Inc. (NYSE: EDU) stock is rated as a Buy, with appealing valuations based on its P/E metric compared to expected earnings growth rate [1]. Group 1: Investment Strategy - The research service Asia Value & Moat Stocks focuses on value investors looking for Asia-listed stocks with significant price and intrinsic value gaps, emphasizing deep value balance sheet bargains and wide moat stocks [1]. - The service provides a range of watch lists with monthly updates, targeting deep value balance sheet bargains and high-quality businesses [1]. Group 2: Market Focus - The investment group particularly emphasizes opportunities in the Hong Kong market, seeking stocks that are undervalued or have strong competitive advantages [1].

Investment Rating - The investment rating for the company is "Outperform the Market" [4]. Core Views - The company has successfully adapted to the new regulatory environment post "Double Reduction" policy, showing significant transformation results. In FY2024, the company achieved revenue of $4.314 billion, a 44% increase, and a Non-GAAP net profit of $381 million, a 47% increase, indicating a recovery to 98% of FY2021 levels [1][11]. - The company is transitioning from K9 academic training to new educational business models, including competency training and smart learning systems, while maintaining its high school and adult education services [1][2]. - The education industry is experiencing a supply clearance with strong demand resilience, leading to a concentration trend among leading institutions [1][2]. Summary by Sections Company Overview - Founded in 1993 by Yu Minhong, the company is a leading education and training institution in China, listed in the US in 2006 and in Hong Kong in 2020. It has diversified its business to include K12 education, study abroad consulting, and adult education [1][11]. Transformation Strategy - The company has ceased K9 academic training and is exploring new business avenues such as competency training, e-commerce, and cultural tourism, leveraging its brand and traffic for diversified monetization [1][2][15]. Industry Analysis - The education sector has seen a significant reduction in supply post "Double Reduction" policy, with a 96% decrease in K9 training institutions. The market is expected to recover to pre-policy levels by 2025, with leading institutions gaining market share [1][2][15]. Growth Outlook - New educational businesses are projected to generate $890 million in FY2024, with expected growth rates of 55%, 22%, and 20% from 2025 to 2027. Traditional education services are expected to grow at a stable rate of 15-20% over the next three years [2][5]. - E-commerce and cultural tourism are also anticipated to contribute to growth, with the e-commerce segment expected to recover profitability as operations normalize [2][15]. Financial Projections - Revenue forecasts for FY2025-2027 are $5.113 billion, $6.414 billion, and $7.893 billion, with Non-GAAP net profits projected at $528 million, $796 million, and $1.096 billion, respectively [5][2]. - The company is expected to maintain a PE valuation of 25-28x for FY2025, translating to a target market capitalization of $132-148 billion [2][5].

Investment Rating - The report assigns an "Outperform" rating to New Oriental (EDU N) for the first time [2][3] Core Views - New Oriental maintains its leading position in the education industry with strong brand recognition and sustained growth momentum in FY24Q4, achieving revenue of $1 14 billion, a 32 1% YoY increase Full-year revenue reached $4 31 billion, up 43 9% YoY [2] - The education business shows robust growth, with adult and college exam preparation revenue increasing by 16 4% YoY and new education business revenue surging by 50 3% YoY in FY24Q4 The company expanded its offline presence, adding 114 new schools and learning centers in the quarter, bringing the total to 1,025, a 27% YoY increase [2] - Overseas study preparation and consulting businesses continue to grow strongly, with YoY increases of 17 7% and 17 3% respectively in FY24Q4 Post-pandemic recovery is expected to drive significant rebound in overseas study demand [2] - East Buy (formerly New Oriental Online) faces profit pressure due to personnel changes, with its contribution to New Oriental's revenue expected to gradually weaken [2] Financial Forecasts and Valuation - Revenue for FY2025 and FY2026 is projected at $5 34 billion and $6 50 billion respectively, with Non-GAAP net income attributable to shareholders estimated at $500 million and $640 million [3] - The company's PE ratio for FY2025 and FY2026 is forecasted at 22X and 18X respectively, compared to an average PE of 15X and 11X for peer companies [3] - Gross margin is expected to remain stable, ranging between 53 0% and 53 8% from FY2025 to FY2027 [4] - ROE is projected to improve from 10 09% in FY2024 to 13 67% in FY2026 before slightly declining to 11 79% in FY2027 [4] Business Performance - The company's total assets stood at $7 53 billion as of May 31, 2024, with net assets of $4 05 billion and net asset per share of $2 28 [1] - Operating cash flow is expected to remain strong, with projections of $561 million, $643 million, and $784 million for FY2025 to FY2027 respectively [5] - Capital expenditures are forecasted at $170 million annually from FY2025 to FY2027 [5] Market Position - New Oriental's market capitalization is $11 3 billion as of August 22, 2024, with a PB ratio of 3 0 [1] - The company's active paying users reached 188,000 in FY24Q4, with its smart learning systems and devices adopted in approximately 60 cities [2]

Core Viewpoint - New Oriental Education & Technology Group Inc. has announced a special cash dividend of 6 cents per share, totaling approximately $100 million, reflecting its strong financial performance and commitment to returning value to shareholders [1] Group 1: Dividend Announcement - The board approved a special cash dividend of 6 cents per share or 60 cents per ADS, payable to shareholders of record as of September 9, 2024 [1] - Payments are expected to be made on or around September 23 for common shareholders and September 26 for ADS holders [1] - Following the announcement, the stock dropped 2% during the trading session on August 19, 2024 [1] Group 2: Business Performance - The company’s shares have surged 32.8% in the past year, outperforming the Zacks Schools industry's growth of 27% [2] - Increased demand for test preparation and overseas study consulting services has driven growth, with the overseas test-prep business reporting an 18% year-over-year revenue increase [2] - New educational initiatives, including non-academic tutoring and intelligent learning systems, have contributed to growth, with new initiatives reporting a 50% year-over-year revenue increase [3] Group 3: Future Outlook - New Oriental expects healthy growth in its educational business for fiscal 2025, supported by strong demand and established resources [3] - The company aims for margin expansion across most areas, excluding East Buy, and to achieve satisfactory operating profit for the fiscal year [3] - Significant investment in a new tourism-related business is anticipated to generate meaningful revenues in the upcoming fiscal year [4]