NEW ORIENTAL(EDU)2023-09-25 10:09Company Operations - As of May 31, 2023, the company operates a physical network of 85 schools and 663 learning centers across 78 cities in China, employing approximately 26,600 teachers[301]. - The company has ceased offering K-9 Academic AST Services since the end of 2021, resulting in the closure of certain schools and learning centers[305]. - The company offers a variety of educational programs, including test preparation courses and online education, with classroom-based courses designed to be completed in 2 to 16 weeks[308]. - The company has a distribution network consisting of 9 self-operated bookstores and 241 third-party distributors, providing access to a nationwide network of online and offline bookstores[302]. - The company has implemented an OMO (Online-Merge-Offline) system to enhance operational efficiency by combining offline and online learning[301]. - The company has expanded its non-academic tutoring courses to around 60 cities in China since their launch in 2021[313]. - The intelligent learning systems and devices had 183,000 active paid users in the fiscal year ended May 31, 2023, although their contribution to the business was immaterial[314]. - The company developed and edited approximately 516 titles and distributed around 17.0 million books in China during the fiscal year ended May 31, 2023[319]. - The company’s proprietary teaching content development involved around 1,400 personnel as of May 31, 2023, ensuring consistent teaching quality across services[328]. Financial Performance - The company raised approximately US400 million of its ADSs or common shares through May 31, 2023, with an extension through May 31, 2024[299]. - The company completed a share repurchase of 952,000 ADSs for US58.78 per ADS during its previous repurchase program[296]. - In the fiscal year ended May 31, 2023, the company had approximately 495,000 student enrollments in test preparation courses, with 284,000 in overseas courses and 211,000 in PRC courses[312]. - The company reported approximately 1,621,000 student enrollments in non-academic tutoring courses for the fiscal year ended May 31, 2023[313]. - The company expects seasonal fluctuations in operations, with the highest revenue from test preparation courses typically occurring in the first fiscal quarter[337]. - The company has established a strong brand recognition in the private education sector, contributing to significant organic growth through referrals[329]. - The company leverages its OMO system to enhance student acquisition effectiveness while reducing costs[329]. Regulatory Environment - The 2015 amended Education Law allows for-profit educational institutions, effective from June 2016, reversing the previous prohibition[340]. - The 2016 Amended Private Education Law introduced a classification system for private schools, allowing for-profit and non-profit categories, with compulsory education schools remaining non-profit[346]. - For-profit private schools can retain profits and set their own tuition fees without prior government approval, while non-profit schools must adhere to regulated fee structures[346]. - The Amended Implementation Rules require for-profit schools to allocate at least 10% of their audited annual net income to a development fund[351]. - The State Council's 2018 Circular 80 imposes strict regulations on after-school tutoring institutions, including safety requirements and limitations on training content[357]. - After-school tutoring institutions are prohibited from conducting advanced training outside the formal school curriculum for primary and secondary students[359]. - Local authorities are tasked with formulating standards for after-school tutoring institutions, ensuring compliance with safety and operational requirements[357]. - The 2021 Guiding Opinions prohibit after-school tutoring institutions from providing training for preschool children in violation of regulations[361]. - The Ministry of Education emphasizes the need for local governments to manage homework assignments to prevent increased burdens on students from after-school programs[361]. - The government encourages social forces to invest in private education, enhancing support through financial investment and preferential policies[347]. - The Alleviating Burden Opinion prohibits new after-school tutoring institutions for compulsory education and mandates existing ones to register as non-profit[362]. - Online academic tutoring institutions must undergo review and re-approval, with non-compliance leading to cancellation of licenses[362]. - After-school tutoring institutions are restricted from operating during national holidays, weekends, and school breaks[363]. - Fees for academic tutoring in compulsory education will be subject to government price management to prevent excessive charges[363]. - By May 15, 2022, approximately 88% of non-academic tutoring institutions had implemented third-party custodians or risk reserve funds for managing prepaid fees[375]. - The MOE requires all academic after-school tutoring institutions to complete registration as non-profit by the end of 2021, suspending student enrollment until then[368]. - Non-academic tutoring institutions must comply with safety and qualification standards, and cannot charge fees in a lump sum for more than 60 sessions or for a course length exceeding three months[380]. - The Interim Measures for Administrative Penalties on Off-campus Tutoring will take effect on October 15, 2023, imposing penalties for illegal tutoring activities[381]. - The regulations on after-school tutoring are subject to change, which may require the company to adapt its services to remain compliant[382]. - The MOE has established guidelines to strengthen supervision over after-school tutoring institutions, including the prohibition of disguised academic tutoring[377]. Online Education Regulations - The Preschool Opinions aim to achieve a pre-school gross enrollment rate of 85% by 2020 and a coverage of kindergartens with universal access of 80% by 2020[385]. - The regulations prohibit non-state capital from controlling non-profit kindergartens and restrict private kindergartens from listing as public companies[385]. - Online after-school tutoring institutions must publicly disclose teacher qualifications and maintain records of tutoring content for over one year[386]. - Each online class is limited to a maximum duration of 40 minutes, with breaks of at least 10 minutes between classes[386]. - The MOE requires that online after-school tutoring institutions obtain a private school operation permit by the end of 2021[393]. - The filing for mobile internet applications must be completed by March 2024 for apps that began operating before July 21, 2023[397]. - Internet information service providers must obtain an ICP license to operate commercial internet services in China[399]. - Educational live streaming activities are not classified as online performances, thus not requiring an Internet Culture Operation License[402]. - The MOE emphasizes the importance of data security systems for online education applications, particularly for those targeting minors[394]. - The regulations restrict online education products for minors from including links to online games or irrelevant advertisements[392]. - The company is required to obtain a License for Online Transmission of Audio-Visual Programs, but there is uncertainty regarding whether its online business falls within the definition of "Audio-visual Programs" as per the regulations[404]. - The PRC Cybersecurity Law mandates that network operators must obtain consent from individuals before collecting personal information and must not gather unrelated personal information[406]. - The company must comply with the Personal Information Protection Law, which includes handling sensitive personal information and ensuring the security of personal data[413]. - The company is subject to the Measures on Security Assessment of the Cross-border Transfer of Data, which requires security assessments for transferring personal data overseas if certain thresholds are met[418]. Permits and Compliance - The company’s subsidiaries have obtained relevant Permits for Operating Publications Business, which are subject to inspections by regulatory authorities[422]. - The company has obtained the necessary permits for outbound tourism operations through its subsidiary, Beijing New Oriental Walkite International Travel Co., Ltd[425]. - The Ministry of Education (MOE) guidelines stipulate that overseas study tours for primary and middle school students must have a study schedule comprising at least 50% of the total itinerary[426]. - The MOE's Opinions on Education Fees clarify that for-profit private schools can set their own fee levels, while non-profit schools are regulated by provincial governments[428]. - The NDRC, MOE, and SAMR have established that fees for after-school tutoring in compulsory education are subject to government-guided pricing[429]. - The MOE's Administrative Measures require that pre-paid tutoring fees be deposited into special accounts, separate from the institution's funds[430]. - The PRC Advertising Law mandates that companies engaging in advertising must obtain a business license that includes advertising in their scope[431]. - The PRC Consumer Protection Law requires business operators to provide accurate information regarding goods and services and ensure compliance with quality standards[436]. - The E-Commerce Law of the PRC emphasizes fair market competition and prohibits e-commerce operators from imposing unreasonable restrictions on transactions[442]. - The company’s livestreaming e-commerce business does not require an Internet Culture Operation License as it focuses on the sale of agricultural products[441]. - The Trial Administrative Measures for Online Livestreaming Sales mandate that channel operators ensure the authenticity of information provided and maintain records of products and suppliers[443]. Foreign Investment and Regulations - The 2021 Negative List restricts foreign investment in 12 industries, including pre-school education and senior high school education, requiring cooperative joint ventures with a dominant domestic role[449]. - Foreign investors are prohibited from holding more than 50% equity in telecommunications enterprises providing value-added services, requiring approvals from MIIT and Ministry of Commerce[458]. - The Foreign Investment Law implements a pre-establishment national treatment system, ensuring foreign investments are treated equally to domestic investments, except in prohibited industries[451]. - The Anti-Monopoly Law mandates that transactions involving concentrations with specified turnover thresholds must be cleared by SAMR before completion[444]. - Foreign investment in publishing, including books and electronic publications, is prohibited under the 2021 Negative List[456]. - The MOFCOM Order No. 4 of 2020 allows for the inclusion of foreign entities in the list of unreliable entities based on their impact on China's sovereignty and security[447]. - The Foreign Investment Law replaced previous regulations and allows existing foreign-invested enterprises to maintain their corporate forms for five years post-implementation[450]. - The 2021 Negative List requires foreign educational organizations to operate in cooperation with Chinese counterparts in restricted industries[453]. - The regulations on foreign currency exchange allow RMB to be freely convertible for current account items, but capital account items require prior approval from SAFE[464]. - The Anti-Monopoly Guidelines for the Internet Platform Economy specify circumstances under which internet platform activities may be deemed monopolistic[445]. - SAFE Circular 142 regulates the conversion of foreign currency capital into RMB for foreign-invested companies, restricting its use to approved business scopes and requiring SAFE's approval for any changes[465]. - SAFE Circular 19 allows RMB capital converted from foreign currency to be used for equity investments in China, but applications for such investments are often rejected if they exceed the business scope[466]. - SAFE Circular 28 permits foreign-invested companies to use RMB converted from foreign currency for equity investments in China, provided they comply with applicable laws and the negative list on foreign investment[466]. Taxation and Compliance - The Overseas Listing Trial Measures, effective March 31, 2023, require domestic companies seeking to list overseas to fulfill filing procedures with the CSRC[482]. - The CSRC has established a six-month transition period for companies that have obtained overseas regulatory approvals prior to the effective date of the Overseas Listing Trial Measures[483]. - The EIT Law imposes a uniform 25% enterprise income tax rate on both foreign-invested and domestic enterprises, with a preferential 15% rate for "high and new technology enterprises"[486]. - Non-compliance with SAFE regulations may lead to penalties, including restrictions on foreign exchange activities and dividend distributions[469]. - The M&A Rule requires prior notification to the Ministry of Commerce for foreign investors taking control of PRC domestic enterprises in certain situations[481]. - The implementation of employee stock ownership programs requires filing with local tax authorities before execution and exercise of share options[477]. - The regulations on labor require employers to establish labor contracts and ensure wages meet local minimum standards[472]. - Software enterprises established after January 1, 2011, are exempt from enterprise income tax for two years starting from their first profitable year, followed by a 12.5% tax rate for the next three years[487]. - Enterprises established before January 1, 2011, can continue to enjoy similar tax preferential treatments until their tax holiday expires[488]. - Software enterprises must provide filing documents for preferential tax treatments when filing annual enterprise income tax returns[489]. - The enterprise income tax law states that foreign enterprises with "de facto management bodies" in China are considered "resident enterprises" and subject to a 25% tax rate on global income[490]. - The SAT issued a bulletin in August 2011 clarifying the determination of resident status and tax withholding for PRC-controlled offshore enterprises[491].