Investment Rating - Buy (Maintained) [4] Core Views - The company is expected to achieve a more balanced expansion and store efficiency from H2 2024, leading to better-than-expected revenue, profit scale, and margin improvement [1] - Market share is expected to continue optimizing, with K9 non-academic and high school stage revenues projected to exceed $2.2 billion and $1.8 billion respectively by FY27, with a CAGR of 35% and 19% from FY24 to FY27 [2] - Profit margins have ample room for optimization, with gross margins expected to improve by 4-5 percentage points due to increased utilization rates, OMO-driven store efficiency, and optimized rental costs [2] - The company is currently in an adjustment observation period, with short-term catalysts expected from summer and autumn enrollment growth outpacing store expansion [2] Market Share Optimization - The company's market share is expected to significantly improve compared to pre-double reduction levels, with K12 student enrollment share projected to reach 2.7% by FY27, matching FY2021 levels [2] - Market share growth is driven by: - Strict entry barriers for quality-oriented literacy courses [2] - Stronger financial capabilities for expansion compared to smaller institutions [2] - Standardized and high-quality teaching research providing cost-effective services [2] - National brand recognition post-2021 [2] Profit Margin Optimization - Gross margins are expected to improve by 4-5 percentage points due to increased utilization rates (from 66% to 80%), OMO-driven store efficiency, and optimized rental costs [2] - Management expense ratios are expected to improve by at least 2 percentage points over the next three years, driven by more balanced KPI settings and faster revenue growth [2] - The company's rapid store expansion in FY24Q4, with 114 new stores added, is seen as a temporary factor affecting margins, not a sign of intensified competition [2] Financial Projections and Valuation - Adjusted net profits for FY25-FY27 are projected at $541 million, $726 million, and $928 million, respectively, with PE ratios of 21.3x, 15.9x, and 12.4x based on the closing price on August 16, 2024 [3] - The company's FY25 PS ratio of 2.3x is below the industry average of 2.7x, and its FY25 PE ratio is lower than peers like TAL Education (42.8x) and Xueda Education (28.1x) [3] - A target market cap of $16.2 billion is set for FY25, implying a 41% upside from the August 16, 2024 closing price [3] Store Expansion and Efficiency - FY24 saw a 37% increase in learning centers, with 1,025 centers by FY24Q4, exceeding the 30% growth guidance [35] - Store expansion slowed in July 2024, signaling a shift towards balancing enrollment growth and store efficiency [35] - The company plans to increase capacity by 20%-25% in FY25, focusing on cities with better revenue and profit performance [35] Business Performance - FY24Q4 revenue grew 32% YoY to $1.14 billion, slightly above guidance, but non-GAAP operating profit and net profit were below Bloomberg consensus estimates due to factors like store expansion costs and management incentives [10] - Education-related new businesses grew rapidly, with FY24Q4 revenue up 50.3% YoY, and non-academic course enrollments increased by 39% YoY to 875,000 [12] - The company expects FY25Q1 revenue (excluding Dongfang Zhenxuan) to grow 31%-34% YoY, with education business operating margins improving by 2 percentage points [13]
新东方-S：新东方深度报告：市占持续优化，FY25扩张节奏与门店效益有望均衡发展