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 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 726 million, and 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