Investment Rating - The report maintains a "BUY" rating for New Oriental, with a target price of US$87.00, down from the previous target of US$95.00, indicating a potential upside of 29.6% from the current price of US$67.13 [4][2]. Core Insights - New Oriental reported a net revenue growth of 30.5% YoY to US$1,435 million in 1QFY25, aligning with estimates. Non-GAAP net income increased by 39.8% YoY to US$265 million, driven by improved operating margins in core educational services [2]. - The company anticipates a revenue growth of 25-28% YoY for 2QFY25, with expectations of reaccelerated growth in 3Q and 4Q, maintaining a full-year growth outlook of approximately 30% YoY for FY25 [2]. - The report highlights strong performance in core educational businesses, with overseas-related revenue up 19% YoY and new educational initiatives growing by 50% YoY in 1QFY25 [2]. - The tourism business showed significant growth, with a 221% YoY increase in revenue from study tours and research camps for K12 and university students [2]. Financial Summary - For FY25E, total revenue is projected at US$5,216 million, with adjusted net profit expected to reach US$516.9 million. The adjusted EPS is forecasted at US$3.12 [3][11]. - The report indicates a gross margin of 54.3% and an operating margin of 9.7% for FY25E, with expectations for gradual improvement in profitability metrics over the following years [6][14]. - The company’s total assets are projected to grow from US$7,532 million in FY24 to US$10,634 million by FY27, reflecting a strong balance sheet position [12]. Valuation Methodology - The valuation employs a sum-of-the-parts (SOTP) approach, attributing US$83.4 million to the educational and consulting business, US$1.0 million to East Buy, and US$2.6 million to tourism and other ventures [8][9]. - The educational and consulting segment is valued at a premium PE of 27x FY25E, reflecting New Oriental's leadership in the educational services market in China [8].

Financial Data and Key Metrics - Total net revenues increased by 30.5% YoY, with core educational business revenues (excluding East Buy) growing by 33.5% YoY [3] - Operating margin and non-GAAP operating margin reached 23.7% and 24.4%, respectively, representing YoY improvements of 370 basis points and 220 basis points [4] - Net income attributable to New Oriental increased by 48.4% YoY to $245.4 million, with non-GAAP net income up 39.8% YoY to $264.7 million [12] - Net cash flow from operations was $183.2 million, with capital expenditures of $80.2 million [12] - Cash and cash equivalents, term deposits, and short-term investments totaled approximately $4.9 billion [9] Business Line Performance - Overseas test prep business revenue increased by 19% YoY, while overseas study consulting business revenue grew by 21% YoY [5] - Adults and university students business revenue increased by 30% YoY [5] - Non-academic tutoring courses recorded approximately 484,000 student enrollments, with the top 10 cities contributing over 60% of revenue [6] - Intelligent learning system and device business reported 323,000 active paid users, with the top 10 cities contributing around 55% of revenue [6] - New educational business initiatives grew by 50% YoY [6] - Tourism-related business, including study tours and research camps, saw revenue growth of 221% YoY, with operations in over 55 cities [7] Market and Strategic Direction - The company invested $24.6 million in its OMO teaching platform to enhance service flexibility [8] - East Buy expanded its product offerings to 488 SKUs and diversified its sales channels, including Tmall, JD, Pinduoduo, and Xiaohongshu [8][9] - The company plans to increase capacity by 20% to 25% in FY2025, focusing on cities with strong financial performance [14] - New Oriental is committed to integrating AI and ChatGPT into its educational offerings to improve efficiency and growth [16] Management Commentary - Management expressed confidence in maintaining healthy growth for the core educational business, supported by solid educational resources [14] - The company is cautiously managing capacity expansion and hiring to balance revenue and profitability growth [14] - Management expects steady growth and satisfactory operating profit for the full fiscal year, despite Q2 being a slower season [15] Q&A Session Question: Second quarter guidance and capacity expansion [18] - Management explained that Q2 is typically a slower quarter due to seasonality but expects revenue growth to accelerate in Q3 and Q4, with full-year growth around 30% YoY [19] Question: Capacity expansion and margin improvement [21] - The company plans to increase capacity by 20% to 25% for FY2025, with margin expansion expected for the full year despite minor pressure in Q2 [22] Question: Margin improvement drivers [24] - Margin improvement was driven by positive top-line growth across business lines, increased utilization rates from learning center expansion, and cost control measures [25] Question: Cultural tourism revenue and profitability [27] - Tourism-related business contributed approximately $90 million in Q1, with profitability expected to be loss-making for the full year [29] Question: K-12 new initiatives revenue breakdown [32] - Non-academic tutoring and intelligent learning device businesses grew by over 50% YoY, with similar growth rates for both segments [33] Question: Growth breakdown for Q2 [35] - Overseas-related business is expected to grow over 20%, domestic test prep and university students business over 30%, and new businesses over 50% [35] Question: New business growth clarification [37] - Non-academic tutoring and intelligent learning device businesses grew over 55% YoY, with non-academic tutoring contributing more than half of new educational business revenue [38][39] Question: Second quarter margin pressure [45] - Q2 margin pressure is attributed to seasonality, tourism business losses, and conservative guidance, with expectations of better performance in Q3 and Q4 [46] Question: East Buy revenue and guidance [51] - East Buy's financial results will be detailed in the next quarter, with Q2 guidance excluding East Buy's revenue [52] Question: New business growth and high school business performance [55] - New educational initiatives are expected to grow around 45% to 46% in Q2, with non-academic tutoring and intelligent learning devices growing over 50% [56]

New Oriental Announces Results for the First Fiscal Quarter Ended August 31, 2024 BEIJING, Oct. 23, 2024 /PRNewswire/ – New Oriental Education & Technology Group Inc. (the "Company" or "New Oriental") (NYSE: EDU/ 9901.SEHK), a provider of private educational services in China, today announced its unaudited financial results for the first fiscal quarter ended August 31, 2024, which is the first quarter of New Oriental's fiscal year 2025. Financial Highlights for the First Fiscal Quarter Ended August 31, 2024 ...

Financial Performance - For the first quarter of fiscal year 2025, net revenue increased by 30.5% year-over-year to $1,435.4 million, while net revenue excluding the revenue from self-operated products and live e-commerce business rose by 33.5% to $1,278.2 million[3]. - Operating profit for the first quarter of fiscal year 2025 rose by 42.9% year-over-year to $293.2 million, and operating profit excluding losses from self-operated products and live e-commerce business increased by 58.4% to $303.1 million[3]. - Net profit attributable to New Oriental shareholders increased by 48.4% year-over-year to $245.4 million[3]. - Basic earnings per ADS increased by 48.6% year-over-year to $1.49, while diluted earnings per ADS rose by 49.6% to $1.48[3]. - Non-GAAP net profit attributable to New Oriental increased by 39.8% year-over-year to $264.7 million[3]. - The operating profit for the quarter was $293.2 million, representing a year-over-year increase of 42.9%[9]. - The GAAP operating profit margin was 23.7%, an increase of 370 basis points year-over-year[8]. - Non-GAAP operating profit margin was 24.4%, up 220 basis points compared to the previous year[8]. - The company reported a non-GAAP net profit of $264,732 for the three months ended August 31, 2024, compared to $189,318 in the same period of 2023[25]. Business Growth - The total number of schools and learning centers reached 1,089, an increase of 64 from 1,025 as of May 31, 2024, and an increase of 296 from 793 as of August 31, 2023[5]. - The overseas exam preparation and consultation businesses grew approximately 18.8% and 20.7% year-over-year, respectively[5]. - Domestic exam preparation business for adults and college students recorded a year-over-year growth of approximately 30.4%[5]. - New educational businesses maintained strong growth momentum with a year-over-year revenue increase of 49.8%[5]. - Active paying users for the smart learning system and equipment reached approximately 323,000 in about 60 cities during the quarter[5]. Cash Flow and Assets - The company achieved a net operating cash flow of approximately $183.2 million for the quarter[12]. - Cash and cash equivalents, along with time deposits and short-term investments, totaled approximately $4.9 billion at the end of the quarter[8]. - As of August 31, 2024, total assets amounted to $7,709,118 thousand, an increase from $7,531,673 thousand as of May 31, 2024[22]. - Total liabilities decreased slightly to $3,470,179 thousand from $3,482,659 thousand[23]. - Cash and cash equivalents were reported at $1,146,959 thousand, down from $1,389,359 thousand[22]. - The company’s total equity increased to $4,238,939 thousand from $4,049,014 thousand[23]. - The current assets totalled $5,491,293 thousand, compared to $5,388,878 thousand previously[22]. - The company experienced a decline in cash and cash equivalents, with a net change of $(237,953) for the three months ended August 31, 2024[28]. Future Outlook - New Oriental plans to achieve net revenue between $851.4 million and $871.8 million for the second quarter of fiscal year 2025, reflecting a year-over-year growth rate of 25% to 28%[14]. - The company has authorized a share repurchase plan of up to $700 million, extended until May 31, 2025, with approximately 9.8 million ADS repurchased for about $457.9 million as of October 22, 2024[6]. - Future outlook includes managing the expansion of the school network effectively while navigating regulatory uncertainties in the private education sector in China[19]. Financial Metrics and Reporting - The company reported a net income excluding stock-based compensation and investment fair value changes, providing a clearer view of operational performance[20]. - Deferred revenue stood at $1,733,126 thousand, a decrease from $1,780,063 thousand[23]. - The company emphasized the importance of Non-GAAP financial metrics for assessing performance and liquidity[20].

Company Performance - New Oriental (EDU) shares dropped by 1.87% in pre-market trading, priced at $74.36 [1] - Macquarie revised its forecast for New Oriental's non-GAAP net profit for fiscal years 2025 to 2027, reducing it by 11.6% to 13.3% [1] - The revision is based on a lowered revenue prediction and non-GAAP operating profit forecast for the company [1] Business Segments - New Oriental's non-academic K-9 business remains robust [1] - An anticipated slowdown in the growth of its overseas test preparation business during the first quarter of fiscal year 2025 [1]

Core Viewpoint - New Oriental's shares experienced a decline of approximately 9.8% in pre-market trading following a downward revision of profit forecasts by Macquarie for fiscal years 2025 to 2027 [1] Financial Performance - Macquarie adjusted its forecast for New Oriental's non-GAAP net profit downward by 11.6% to 13.3% based on lowered revenue projections and operating surplus expectations [1] - The target price for New Oriental's H shares was revised from HKD 71 to HKD 63.1, maintaining a projected price-to-earnings ratio of 25 times for fiscal year 2025 [1] Business Outlook - Despite the downgrades, Macquarie maintains an "Outperform" investment rating, anticipating that the non-academic K9 business will remain robust [1] - Growth in overseas exam preparation is expected to slow down in the first quarter of fiscal year 2025 [1]

Investment Rating - The report maintains a "Buy" rating for New Oriental [5][11]. Core Views - New Oriental's revenue for the first quarter of FY25 is expected to reach USD 1.462 billion, representing a year-on-year increase of 32.9%, with a non-GAAP net profit of USD 277 million, up 46.4% year-on-year [4][7]. - The strong growth in the education business is driven by the rapid expansion of non-academic training, overseas study test preparation, and high school subject training [8][9]. - The company is expected to open over 50 new learning centers in FY25, increasing the total to over 1,075, a growth of approximately 35.6% year-on-year [9][11]. - The e-commerce segment is projected to contribute about USD 220 million in revenue for the first quarter, accounting for 15% of total revenue, which is a decrease from 19% in the previous quarter [10][11]. Financial Data and Profit Forecast - Revenue projections for New Oriental are as follows: - FY23: USD 2.998 billion - FY24: USD 4.314 billion - FY25: USD 5.438 billion - FY26: USD 6.916 billion - FY27: USD 8.844 billion - Non-GAAP net profit forecasts are: - FY25: USD 493 million - FY26: USD 672 million - FY27: USD 891 million [6][13]. - The report anticipates a non-GAAP operating profit margin of 24.3% for the education business in FY25, an increase of 2 percentage points year-on-year [11][12].

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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