Investment Rating - The report initiates coverage with an "OUTPERFORM" rating, indicating expected performance above the market average [2][13]. Core Insights - New Oriental is recognized as a leading integrated education service provider in China, excelling in various segments including K-12 and overseas services. The company is leveraging generative AI to enhance operational efficiency and content quality, which is expected to support margin expansion [3][20]. - For FY26, the company anticipates a significant increase in shareholder returns, announcing a total of US$490 million in shareholder returns, including a cash dividend of US$190 million and a share buyback plan of US$300 million [5][25]. - The financial outlook for FY26 includes projected revenues of US$5.37 billion, with a net profit of approximately US$561 million, reflecting a profit margin of 10.4% [9][18]. Summary by Sections Financial Performance - In Q1 FY26, total revenue grew by 6.1% year-over-year to US$1.523 billion, exceeding previous guidance [21]. The adjusted operating profit increased by 11.3% to US$335.5 million, with an operating profit margin of 22% [4][24]. - The deferred revenue reached US$1.906 billion, marking a 10% year-over-year increase [21]. Business Segments - The K-12 segment is expected to accelerate in Q2 FY26, with high school growth projected at 12% and K9 new initiatives at 21% [22]. - The overseas business, while facing macroeconomic pressures, showed slight growth in Q1 FY26, with expectations of a 5% decline in Q2 due to high base effects [23]. Shareholder Returns - The company has committed to a shareholder return plan with a payout ratio exceeding 50%, reflecting confidence in future profit growth [5][26]. - The expected dividend yield is approximately 5% based on the latest market capitalization [25]. Valuation - The target price is set at HK$49 per share, based on an 18x price-to-earnings ratio for FY26, indicating a strong valuation relative to peers [2][13].

Core Insights - The average annual salary for employees at Dongfang Zhenxuan in the fiscal year 2025 is 839,600 yuan, which is 2.02 times higher than the salary at the live e-commerce company Jia Ge Pengyou Holdings for the fiscal year 2024 [1] - New Oriental faced significant challenges due to the "double reduction" policy implemented in July 2021, which severely impacted its K9 tutoring business that accounted for 60% of its revenue [1] - Following a reduction in employee numbers, the average salary at New Oriental and New Oriental Online increased significantly, with New Oriental's average management expenses reaching 234,300 yuan in fiscal year 2022 and New Oriental Online's average salary hitting 348,600 yuan [1] - In fiscal year 2023, Dongfang Zhenxuan's revenue surged to 4.51 billion yuan, leading to a collective salary increase, with the average annual salary reaching 375,000 yuan [1] - Despite a 32.7% year-on-year decline in revenue to 4.39 billion yuan in fiscal year 2025, the average salary increased to 839,600 yuan due to a reduction of nearly 500 employees [1] Company Specifics - Currently, only Yu Minhong from New Oriental receives an annual salary in the millions, which is approximately 87 times the average management expense per employee at New Oriental and nearly 13 times the average salary at Dongfang Zhenxuan [2] - Yu Minhong has been publicly criticized by Luo Yonghao for being overly frugal, to which he responded by emphasizing his responsibility to protect Dongfang Zhenxuan and its hosts [2]

Market Performance - US stock market opened high and closed higher, with all three major indices rising for four consecutive days [1] - Dow Jones increased by 0.67% to 47,427.12 points, S&P 500 rose by 0.69% to 6,812.61 points, and Nasdaq Composite climbed by 0.82% to 23,214.69 points [1] - Market volatility eased, with the S&P 500 volatility index (VIX) dropping approximately 35% over four days, marking the largest decline since mid-April [1] Technology Sector - Mixed performance among large tech stocks: Nvidia up 1.37%, Apple up 0.21%, Google C down 1.04%, Microsoft up 1.78%, Amazon down 0.22%, Broadcom up 3.26%, Meta down 0.41%, and Tesla up 1.71% [1] - Philadelphia Semiconductor Index rose by 2.76%, with all 30 component stocks closing higher [1] - Notable gains in semiconductor stocks: Teradyne up 6.98%, Marvell Technology up 5.14%, AMD up 3.93%, ASML up 3.76%, and Micron Technology up 2.55% [1] Chinese Stocks - Nasdaq Golden Dragon China Index slightly declined by 0.03% [2] - Most popular Chinese stocks saw gains: Vipshop up 2.54%, Pinduoduo up 1.58%, JD.com up 0.96%, Li Auto up 0.6%, New Oriental up 0.39%, and Alibaba up 0.38% [2] - Declines were noted in some Chinese stocks: Hesai down 7.37%, Tencent Music down 2.33%, Xpeng down 2.22%, Baidu down 1.31%, and NIO down 0.73% [3]

Core Viewpoint - The internal letter from New Oriental's founder, Yu Minhong, on the company's 32nd anniversary sparked significant public backlash, leading to multiple apologies and clarifications from him regarding his trip to Antarctica, which was perceived as a luxury vacation rather than a work-related trip [1][3][6]. Group 1: Public Reaction - Yu Minhong's attempts to clarify his intentions were met with skepticism, as many employees were busy working while he was in Antarctica, leading to accusations of insensitivity and a disconnect between management and staff [5][9]. - The public perceived his explanations as superficial and failing to address the core issues, resulting in further criticism [8][12]. - The stark contrast between Yu's experiences in Antarctica and the struggles of his employees led to negative comparisons, with some viewing his actions as flaunting wealth [9][12]. Group 2: Internal Company Dynamics - Despite Yu Minhong's efforts to maintain a positive company culture and retain key talent, he faced significant challenges, including the departure of prominent figures like Dong Yuhui and Sun Dongxu from the company [14][16]. - Yu's management style, characterized by a desire for balance and harmony, ultimately did not prevent the loss of these critical team members, raising questions about his leadership effectiveness [20][22]. - The company's performance metrics, such as the drop in GMV from 143 billion yuan in the 2024 fiscal year to 87 billion yuan in the 2025 fiscal year, reflect the impact of these internal conflicts and leadership challenges [22].

Core Viewpoint - The essence of corporate culture is not merely a slogan but a foundational framework that drives employee behavior and decision-making, akin to a product's underlying architecture [2][6][17] Group 1: Organizational Challenges - Many companies face a common dilemma where the cultural values promoted by leadership do not resonate with the actual experiences and needs of employees, leading to a disconnect [5][6] - This disconnect often manifests in employee dissatisfaction and a lack of engagement with the company's cultural initiatives [5][6] Group 2: Cultural Development Process - Effective cultural development should mirror the product development process, involving thorough "user research" to understand employee needs and pain points [8][11] - Cultural values must be translated into actionable behaviors that employees can easily understand and implement in their daily work [12][13] - Continuous feedback and data-driven adjustments are essential for cultural evolution, ensuring that it remains relevant and effective [14] Group 3: Employee Engagement and Co-Creation - Successful companies transition from a top-down approach to culture to one where employees actively participate in shaping and co-creating the culture [15][16] - When employees are involved in the cultural development process, they are more likely to internalize and embody the values, leading to a more cohesive organizational identity [16][19] Group 4: Cultural Impact on Business - A well-integrated culture acts as a critical asset for companies, influencing employee behavior and ultimately impacting business performance [17][18] - The true test of a company's culture is whether employees would act in alignment with its values even in the absence of formal guidelines or oversight [18][19]

Group 1 - A new stringent regulation for power banks will eliminate nearly 70% of existing production capacity, as the old 3C certification will become invalid. The new standards are expected to be published in December 2025 and implemented by June 2026 [5][6] - NIO aims for profitability in Q4 2025, with a target of 50,000 monthly sales in the first half of 2026 and plans to launch three large new models [8][9] - Baidu has established two new AI model research departments, indicating a focus on enhancing its capabilities in artificial intelligence [9][10] Group 2 - Li Xiang, founder of Li Auto, announced that the company will not produce smartphones but will release smart glasses as part of its ecosystem [15] - Zhihu reported a net loss of 46.7 million RMB in Q3 2025, with a significant decline in revenue across various segments [17] - Alibaba's Q2 FY2026 revenue reached 247.8 billion RMB, driven by a 34% increase in AI-related product revenue, indicating strong demand in the AI sector [12] Group 3 - Trump signed an executive order to launch the AI "Genesis Plan," aimed at transforming scientific research through AI [35] - Apple confirmed layoffs in its sales department and significantly reduced production of the iPhone Air due to lower-than-expected sales [36] - Amazon announced a plan to invest up to $50 billion in expanding AI and supercomputing capabilities for its cloud services [37]

Core Viewpoint - The incident involving New Oriental's founder Yu Minhong sending a congratulatory letter from Antarctica highlights a disconnect between management and employees, revealing the challenges faced by employees in the current economic climate [1][5][21] Group 1: Employee Sentiment - Employees expressed frustration over the disparity between their struggles and the founder's extravagant trip, with one employee commenting on the stark contrast of working late in Beijing while the boss enjoys a luxury vacation [3][5] - The letter's focus on personal reflections rather than addressing employee concerns about workload and compensation led to negative reactions from staff [5][9] - Employees are more concerned about immediate financial pressures, such as rent and salaries, rather than abstract notions of time and perseverance [9][15] Group 2: Company Performance - New Oriental reported a significant decline in net profit, dropping by 73.7%, primarily due to underperformance in its subsidiary, Dongfang Zhenxuan, and a slowdown in growth in its core education business [9][21] - The company's growth rate in the education sector fell from 43.9% to 13.6%, indicating a need for strategic reassessment [9] Group 3: Management Approach - Yu Minhong's attempt to draw inspiration from the story of penguins in Antarctica to motivate employees was perceived as tone-deaf given the current economic hardships faced by staff [5][19] - The company's management style has been criticized for lacking genuine employee engagement and support, contrasting with successful models like Pang Donglai, which prioritizes employee welfare [11][19] - The incident serves as a reminder for companies to align their values and actions with the real-life concerns of employees, emphasizing the importance of tangible benefits over lofty ideals [17][21]

Core Viewpoint - The controversy surrounding New Oriental's founder Yu Minhong's internal letter from Antarctica reflects deeper concerns about the company's management strategy and its alignment with current business challenges, particularly regarding the sustainability and independence of the Oriental Selection business [3][4]. Group 1: Management and Leadership Changes - Yu Minhong's internal letter sparked criticism, with employees feeling disconnected from management's priorities, especially following the departure of key executives like Sun Dongxu [3][4]. - The company has faced significant leadership instability, with the exits of core personnel leading to a decline in operational performance and market confidence [6][7]. Group 2: Financial Performance - New Oriental's Q1 FY2026 report showed a 6.1% year-on-year revenue increase, but net profit attributable to shareholders fell by 1.9% [6]. - Oriental Selection's FY2025 financials revealed a 30.9% year-on-year revenue decline in core operations, with net profit dropping from 249.1 million to 6.2 million [6][7]. Group 3: Market Concerns - The company's gross merchandise volume (GMV) for the fiscal year decreased by 39.2%, from 14.3 billion to 8.7 billion [7]. - Investors are increasingly focused on Yu Minhong's prioritization of business segments and the need for talent resource allocation rather than personal endeavors [8].

Core Viewpoint - The internal letter from Yu Minhong, chairman of New Oriental Education Group, is characterized as an explanation rather than an apology, addressing employee dissatisfaction regarding his previous comments and the use of red font in the letter [1] Group 1 - Yu Minhong expressed regret for triggering employee dissatisfaction with his previous letter, clarifying that his references to Antarctica were not intended to boast [1] - The use of red font in the letter was explained as a cultural reference, with Yu stating that it symbolizes celebration for his generation [1] - Economist Ma Guangyuan supported Yu Minhong's stance, emphasizing that the letter was more about clarification than an apology and criticized the narrative of creating a divide between management and employees [1]

Core Viewpoint - The recent letter from New Oriental founder Yu Minhong, sent from Antarctica, has sparked discussions, with economist Ma Guangyuan supporting Yu's message as an explanation rather than an apology, emphasizing the importance of the relationship between the company and its employees [1]. Group 1 - Ma Guangyuan praised Yu Minhong's letter for its balanced tone, stating it does not cater to online sentiments and focuses on clarifying rather than apologizing [1]. - The media's framing of Yu's letter as an apology is challenged by Ma, who believes the letter primarily serves to explain the situation and does not endorse the notion of a divide between management and employees [1]. - Ma highlighted that Yu's trip to Antarctica should not be viewed as boastful, but rather as a reflection of his personal experiences and economic capability, noting that the trip cost is insignificant for him [1]. Group 2 - Ma emphasized that the narrative surrounding Yu's trip and letter could have been more positively received if it had focused on the challenges faced and insights gained for company development and employee welfare [1]. - He pointed out that both Yu and the employees are not at fault; rather, the changing narrative of the times has influenced public perception [1].