TAL(US:TAL)2024-10-25 11:13Investment Rating - The report maintains a "Buy" rating for TAL Education Group (TAL US) with a target price of $13.80, indicating a potential upside of 31.4% from the current price of $10.50 [1][3][6]. Core Insights - TAL Education's revenue for Q2 FY2025 reached $619 million, representing a 50% year-over-year increase, surpassing both internal and Bloomberg consensus estimates of 45% and 46% respectively. This growth was primarily driven by strong demand for quality education training and sales of learning machines [1]. - The adjusted operating profit for the same quarter was $65 million, with an operating margin of 10%, which, despite a year-over-year decline of approximately 2 percentage points, still exceeded expectations [1]. - The report highlights that the learning services segment saw an estimated revenue growth of around 80% year-over-year, driven by strong demand and an increase in enrollment due to the expansion of teaching points [1]. - The sales of learning machines also maintained high growth, with estimated sales of 100,000 to 150,000 units in Q2, supported by the launch of new products [1]. - Marketing expenses as a percentage of revenue increased by nearly 6 percentage points to 29%, while management expenses decreased by 9 percentage points to 19%, indicating ongoing operational efficiency improvements [1]. Financial Projections - For Q3 FY2025, which is typically a slower season for the education industry, revenue is expected to grow by 39% year-over-year to $520 million, supported by the performance of small class services and new product sales [1][5]. - The report projects that the adjusted operating profit margin will be -3.5% for Q3 FY2025, compared to -2.7% in the same period last year [1]. - Revenue forecasts for the fiscal years 2024 to 2027 are as follows: $1,490 million in 2024, $2,103 million in 2025, $2,444 million in 2026, and $2,797 million in 2027, with respective year-over-year growth rates of 46.2%, 41.1%, 16.2%, and 14.5% [2][8]. Valuation - The report adjusts the operating profit forecast for FY2025 to $48 million, up from breakeven, with a profit margin of 2%. For FY2026 and FY2027, the operating profit margins are expected to stabilize at approximately 6% and 10% respectively, with absolute profit values of $146 million and $274 million [1][5]. - The valuation is based on a 20x price-to-earnings ratio for the education business and a 1x price-to-sales ratio for learning machines, supporting the target price of $13.80 [1].