Summary of Conference Call on China Education Sector Industry Overview - The conference call focuses on the China education industry, specifically comparing TAL Education Group (TAL) and New Oriental Education & Technology (EDU) [6][8]. Key Points on TAL Education Group (TAL) - **Revenue Growth and Margins**: TAL is expected to have a better setup for FY26 compared to EDU, with deferred revenue growing by 52% year-over-year (YoY) in F1Q26, indicating strong growth potential for FY26 [8][11]. - **Shareholder Returns**: TAL repurchased approximately US$477.4 million worth of shares in F1Q26, which is about 7% of its market cap, at an average price of US$10.5. A new buyback program of US$600 million was also announced [8][11]. - **Valuation**: TAL trades at 19.3x F27 PE and 8.1x F27 ex-cash PE, with projected revenue and net profit compound annual growth rates (CAGR) of 21% and 40% respectively over FY26-29 [8][11]. Key Points on New Oriental Education & Technology (EDU) - **Revenue Guidance**: EDU's revenue guidance for F1Q26 is +2-5% and +5-10% for FY26, which is below market expectations due to a weaker overseas business outlook and a higher base in the educational business [8][10]. - **Operational Profit Margin (OPM)**: Management guided for OPM to increase by 0-0.5 percentage points YoY for F1Q26, but expects a flat OPM for FY26 due to cost control efforts being offset by margin drag from overseas business [8][10]. - **Shareholder Returns**: EDU announced a three-year recurrent shareholder return plan to return no less than 50% of GAAP net income, implying at least US$186 million in FY26, which is lower than the US$500 million returned in FY25 [8][10]. Comparative Analysis - **Investment Preference**: Morgan Stanley prefers TAL (Overweight) over EDU (Equal-Weight) in the China education sector due to TAL's stronger revenue growth and margin trends [8][10]. - **Market Expectations**: TAL's performance is seen as more favorable compared to EDU, which is struggling with lower revenue guidance and operational challenges [8][10]. Additional Insights - **Risks**: Potential risks for both companies include intensified competition, regulatory changes in high school and non-academic tutoring, and the visibility of revenue from live-streaming e-commerce businesses [15][16]. - **Market Sentiment**: The overall sentiment towards the China education industry remains attractive, with expectations for market share gains and earnings growth potential for both TAL and EDU [6][8]. This summary encapsulates the essential insights from the conference call regarding TAL and EDU, highlighting their financial performance, shareholder return strategies, and market positioning within the China education sector.

Core Insights - The company reported FY2025 Q4 total net revenue of $1.24 billion, a year-on-year increase of 9.4%. Excluding self-operated products and live e-commerce from Dongfang Zhenxuan, total revenue was $1.09 billion, up 18.7% year-on-year [1] - Operating cash inflow for FY2025 Q4 was $399 million, with capital expenditures of $65.9 million [1] - The company expects FY26 Q1 net revenue (including e-commerce) to grow by 2% to 5% year-on-year, and FY2026 full-year net revenue to increase by 5% to 10% [1] Financial Performance - FY2025 Q4 operating loss was $8.67 million, compared to an operating profit of $10.53 million in the same period last year. Non-GAAP operating profit was $81.68 million, a year-on-year increase of 116.3% [2] - The net profit attributable to shareholders was $7.1 million, a decline of 73.7% year-on-year, primarily due to a one-time goodwill impairment of $60 million related to kindergarten assets. Non-GAAP net profit attributable to shareholders was $98.08 million, up 59.4% year-on-year [2] Business Segments - Core business remained robust, with revenue from overseas exam preparation and consulting services growing by 14.6% and 8.2% year-on-year, respectively. Domestic exam preparation for adults and university students saw a revenue increase of approximately 17.0% [2] - New education business revenue grew by 32.5% year-on-year, continuing to be a major growth driver. Non-subject tutoring services have been launched in nearly 60 cities, with approximately 918,000 registrations this quarter [2] Profit Forecast and Investment Rating - Due to macroeconomic factors, the company has revised its Non-GAAP net profit forecasts for FY2026-2027 from $600 million and $720 million down to $580 million and $630 million, respectively, with an expectation of $690 million for FY2028. The current stock price corresponds to a PE ratio (Non-GAAP basis) of 12/11/10 times for FY2026-2028 [3] - The company maintains a "buy" rating, citing steady growth in core business, ongoing operational efficiency improvements, and a normalized shareholder return mechanism expected to create long-term value for shareholders [3]

Core Viewpoint - New Oriental (EDU.US) reported a strong performance in FY2025 Q4, with total net revenue reaching $1.24 billion, reflecting a year-over-year growth of 9.4% [1] Financial Performance - Total net revenue for FY2025 Q4 was $1.24 billion, up 9.4% year-over-year [1] - Excluding self-operated products and live e-commerce from Dongfang Zhenxuan, total revenue was $1.09 billion, showing an 18.7% year-over-year increase [1] Business Outlook - Dongwu Securities' latest report indicates that the company's core business is growing steadily, and operational efficiency is continuously improving [1] - The normalized shareholder return mechanism is expected to create long-term value for shareholders [1]

Investment Rating - The report maintains a "Buy" rating for New Oriental-S (09901.HK) [1][3] Core Insights - The company's core business profitability is improving, and a new shareholder return plan demonstrates confidence in future performance [1][3] - The report adjusts the Non-GAAP net profit forecasts for FY2026 and FY2027 down to $580 million and $630 million respectively, with an expectation of $690 million for FY2028 [3] - The current stock price corresponds to a PE ratio (Non-GAAP) of 12, 11, and 10 times for FY2026 to FY2028 [3] Financial Performance Summary - FY2025Q4 total net revenue reached $1.24 billion, a year-on-year increase of 9.4%, while excluding self-operated products and live e-commerce, total revenue was $1.09 billion, up 18.7% year-on-year [8] - The operating cash inflow for FY2025Q4 was $399 million, with capital expenditures of $65.9 million [8] - The company expects a 2% to 5% year-on-year growth in net revenue for FY26Q1 and a 5% to 10% growth for FY2026 [8] - The core business showed robust performance, with revenue from overseas exam preparation and consulting growing by 14.6% and 8.2% respectively, and domestic exam preparation for adults and college students increasing by approximately 17.0% [8] - Non-GAAP net profit for FY2025Q4 was $98.08 million, a year-on-year increase of 59.4%, indicating significant improvement in core education business profitability [8] Financial Forecasts - Total revenue projections for FY2024A to FY2028E are $4.314 billion, $4.900 billion, $5.372 billion, $5.854 billion, and $6.277 billion respectively, with year-on-year growth rates of 43.89%, 13.60%, 9.63%, 8.96%, and 7.24% [1][9] - The forecasted Non-GAAP net profits for FY2024A to FY2028E are $464 million, $517 million, $577 million, $632 million, and $685 million, with growth rates of 79.15%, 11.44%, 11.57%, 9.60%, and 8.38% respectively [1][9] - The report highlights a significant increase in operating profit for Non-GAAP, which is projected to reach $688.83 million by FY2028 [9]

Core Viewpoint - New Oriental's financial report for the fourth quarter and full year of fiscal year 2025 shows a revenue increase but a significant decline in net profit due to goodwill impairment [2][7]. Financial Performance - For the fourth quarter of fiscal year 2025, revenue was $1.243 billion, a year-on-year increase of 9.4%, while net profit was $7.1 million, down 73.7% [2][3]. - Excluding the Oriental Selection business, the fourth quarter revenue was $1.089 billion, up 18.7% year-on-year [2]. - For the entire fiscal year 2025, revenue reached $4.9 billion, a 13.6% increase, and net profit was $371.7 million, up 20.1% [3]. Business Segments - The overseas examination preparation and consulting businesses saw revenue growth of approximately 14.6% and 8.2% respectively in the fourth quarter [4]. - The growth rate of the overseas study business has slowed compared to previous quarters, with earlier growth rates of 18.8%, 21.1%, and 7.1% [5]. - New Oriental's new education business grew by 32.5% in the fourth quarter, with non-subject tutoring services expanding to nearly 60 cities [5]. Cost and Impairment - The significant drop in net profit was primarily due to a $60.3 million goodwill impairment related to kindergarten acquisitions made 8-10 years ago [7]. - Operating costs and expenses for the fourth quarter were $1.252 billion, an 11.2% increase year-on-year, with stock-based compensation expenses rising by 11% to $28.6 million [7]. Future Guidance - New Oriental expects a revenue growth rate of 2%-5% for the first quarter of fiscal year 2026 and 5%-10% for the entire fiscal year [7]. - The company has adjusted its business guidance to include the Oriental Selection business, which has undergone restructuring [8].

Core Viewpoint - New Oriental's financial report for the fourth quarter and full year of fiscal year 2025 shows a revenue increase but a significant decline in net profit due to goodwill impairment, indicating challenges in certain business segments and a strategic shift towards AI investments and new educational solutions [1][3][6]. Financial Performance - For the fourth quarter of fiscal year 2025, revenue reached $1.243 billion, a year-on-year increase of 9.4%, while net profit was $7.1 million, down 73.7% due to a $60.3 million goodwill impairment [1][2]. - Excluding the Oriental Selection business, the fourth quarter revenue was $1.089 billion, reflecting an 18.7% year-on-year growth [1]. - For the entire fiscal year 2025, total revenue was $4.9 billion, up 13.6%, and net profit was $371.7 million, a 20.1% increase [2]. Business Segment Performance - The overseas study preparation and consulting businesses saw revenue growth of approximately 14.6% and 8.2%, respectively, although growth rates have slowed compared to previous quarters [3]. - The new education business experienced a 32.5% revenue increase, with significant engagement in non-subject tutoring across 60 cities [3][4]. - The cultural tourism business reported a 71% revenue growth, driven by domestic and international study tours [4][5]. Cost and Impairment Issues - The significant drop in net profit was primarily attributed to a $60.3 million goodwill impairment related to past acquisitions of kindergartens, reflecting changes in policy and market conditions [6]. - Operating costs and expenses for the fourth quarter were $1.252 billion, up 11.2%, with stock-based compensation expenses increasing by 11% to $28.6 million [6]. Future Guidance - The company anticipates a revenue growth rate of 2%-5% for the first quarter of fiscal year 2026 and 5%-10% for the entire fiscal year, indicating a more stable and sustainable growth phase [6][7]. - The guidance now includes the Oriental Selection business, reflecting its operational stabilization after restructuring [7].

Core Viewpoint - The article presents the market capitalization rankings of the top 50 Chinese technology and internet companies as of August 4, 2025, highlighting significant players in the industry and their respective valuations in billions of USD [1]. Group 1: Top Companies by Market Capitalization - TSMC leads the ranking with a market capitalization of $121.99 billion [3]. - Tencent Holdings follows in second place with a valuation of $63.46 billion [3]. - Alibaba ranks third with a market cap of $27.92 billion [3]. - Xiaomi Group is fourth with a market capitalization of $18.07 billion [3]. - Pinduoduo holds the fifth position with a valuation of $15.62 billion [3]. Group 2: Additional Notable Companies - Meituan ranks sixth with a market cap of $9.45 billion [4]. - NetEase is seventh with a valuation of $8.06 billion [4]. - SMIC (Semiconductor Manufacturing International Corporation) is eighth with a market cap of $5.24 billion [4]. - Dongfang Fortune ranks ninth with a valuation of $5.11 billion [4]. - JD.com is in tenth place with a market capitalization of $4.46 billion [4]. Group 3: Rankings and Changes - Kuaishou is ranked eleventh with a market cap of $4.16 billion [5]. - Tencent Music holds the twelfth position with a valuation of $3.18 billion [5]. - Baidu is thirteenth with a market cap of $2.96 billion [5]. - Li Auto ranks fourteenth with a valuation of $2.70 billion [5]. - Beike is fifteenth with a market capitalization of $2.17 billion, showing an increase in ranking by 11 spots [5].

Investment Rating - The industry investment rating is "Positive" (maintained) [2] Core Views - The report highlights that the fine management of Chinese cuisine releases profit elasticity, while economic structural changes drive technological advancements [1][4] - The education sector is experiencing new opportunities due to social changes, with vocational education gaining traction as parents and students shift their views from "fallback options" to "active choices" [4][21] - The nutrition and health food market in China is steadily growing, with a focus on high-quality cross-border imported health brands [6][34] Summary by Sections Travel and Tourism - The summer travel volume has reached a historical high, with July's passenger transport volume expected to reach 71.2 million, a year-on-year increase of 3.0% [15] - Airlines have adopted a price-for-volume strategy, leading to a 7.5% decline in average domestic economy class ticket prices [15][16] Education - China Oriental Education expects a 7% year-on-year increase in new enrollment and a 10% increase in revenue for the first half of 2025, with net profit projected to grow by 45%-50% [21][23] - Good Future's revenue for FY2026 Q1 is expected to rise by 38.8% year-on-year, with net profit increasing by 174.4% [24][27] - New Oriental's revenue for FY2026 Q1 is projected to be $1.243 billion, a 9.4% increase year-on-year, despite a slowdown in overseas study demand [29] Chinese Cuisine - The "Little Garden" restaurant chain anticipates a net profit of RMB 360-380 million for the first half of 2025, reflecting a year-on-year increase of 28.6%-35.7% [30][35] - The Green Tea Group expects a net profit of RMB 230-237 million for the first half of 2025, a year-on-year increase of 32%-36% [32][33] Nutrition and Health - China's health food import value has grown from $408 million in 2008 to an estimated $7.753 billion in 2024, with a compound annual growth rate of 20.21% [34][37] - Cross-border imported health products are expected to gain market share due to relaxed entry qualifications and diverse consumer demands [43][44]

Investment Rating - Industry rating: Recommended [4] Core Insights - The introduction of the national childcare subsidy policy is expected to benefit the maternal and infant industry chain, with a subsidy of 3,600 yuan per child per year for families with children under three years old, potentially impacting over 20 million families annually [1][2] - New Oriental's FY2025Q4 performance shows a revenue of 150 million USD, a year-on-year decline of approximately 30%, but with a sequential improvement in operating profit margin from 3% in FY25Q3 to 7% in FY25Q4 [3] - The company is transitioning from a host-driven model to a product-driven model, with significant sales in sanitary products and self-branded items [3] Summary by Sections 1. Industry Overview - The report highlights the positive impact of the national childcare subsidy on birth rates, particularly in lower-tier markets, citing examples from cities like Panzhihua and Tianmen where similar policies led to increased birth rates [2] 2. Company Performance - New Oriental's recent performance indicates a recovery in profit margins despite a decline in revenue, with key products like sanitary napkins and self-branded food items performing well in sales [3] 3. Investment Recommendations - The report suggests five investment themes, including the continuous upgrade of AI technology, the emotional value consumers place on purchases, the recovery of cyclical sectors, the potential of domestic brands going global, and the revival of traditional retail formats [6]

Core Insights - New Oriental achieved net revenue of $1.243 billion in FY25Q4, a year-on-year increase of 9.4%, while net profit attributable to shareholders was $7.1 million, down 73.7% year-on-year [1] - The core education business remained stable, but revenue growth guidance for FY26Q1 has decreased [1][2] - The company expects FY26Q1 net revenue to be between $1.464 billion and $1.507 billion, representing a year-on-year growth of 2%-5% [2] Revenue Breakdown - Excluding revenue from self-operated products and live e-commerce, FY25Q4 net revenue was $1.0885 billion, up 18.7% year-on-year, surpassing previous guidance [1] - Revenue from overseas exam preparation increased by 14.6%, while overseas consulting revenue rose by 8.2% in FY25Q4 [1] - Domestic exam preparation for adults and college students saw a year-on-year revenue increase of 17.0% in FY25Q4 [1] New Business Developments - Revenue from new educational services grew by 32.5% year-on-year in FY25Q4, with approximately 918,000 registrations and 255,000 active paying users for smart learning systems [2] - The number of operational outlets exceeded 1,300 by the end of FY25Q4, with expansion plans on track [2] Profitability and Margin Analysis - FY25Q4 operating profit margin was -0.7%, down from 0.9% in the same period last year, primarily due to a one-time goodwill impairment of $60.3 million in the kindergarten business [3] - Non-GAAP operating profit margin for FY25Q4 was 6.6%, an increase of 3.3 percentage points year-on-year [3] - The company anticipates that despite challenges in FY26Q1, profitability may still see year-on-year growth due to the turnaround of the live e-commerce segment and ongoing cost reduction efforts [3] Future Outlook - The company has announced a three-year shareholder return plan, intending to return 50% of the previous fiscal year's net profit to shareholders through dividends or buybacks [2] - Profit forecasts for FY26 and FY27 have been adjusted downwards to $481 million and $559 million, respectively, reflecting a conservative outlook due to macroeconomic pressures [3]