NEW ORIENTAL-新东方：Macro uncertainty to impact revenue growth and margin outlook

Investment Rating - Maintain BUY rating with a revised target price of US $80 0 (previous US$ 87 0) [1] Core Views - New Oriental's 2QFY25 net revenue grew 19% YoY to US $1 039mn (+31% YoY excluding East Buy revenue) in line with estimates but non-GAAP net income declined 29% YoY to US$ 36mn below estimates due to East Buy adjustment and tourism business investments [1] - Management guided 3QFY25E net revenue (excluding East Buy) to grow 18-21% YoY to US $1 01-1 03bn below expectations due to macro uncertainty and intensifying competition [1] - FY25-27E total revenue forecasts trimmed by 2-3% due to softer-than-expected revenue guidance [1] Earnings Summary - FY25E revenue forecast at US$ 5 081mn with adjusted net profit of US $439 4mn and EPS of US$ 2 65 [2] - FY27E revenue forecast at US $6 725mn with adjusted net profit of US$ 829 8mn and EPS of US $5 01 [2] - P/E ratio expected to decline from 25 4x in FY25E to 13 8x in FY27E [2] Business Segments - Overseas test prep and study consulting revenue grew 21% and 31% YoY respectively in 2QFY25 accounting for 24% of total revenue [5] - Domestic test prep revenue grew 35% YoY accounting for 9% of total revenue in 2QFY25 [5] - New educational initiatives revenue grew 43% YoY in 2QFY25 driven by non-academic tutoring (student enrolment +26% YoY) and intelligent learning systems (active paid users +44% YoY) [5] - East Buy revenue declined 9% YoY with a net loss of US$ 13 5mn in 1HFY25 but would have recorded US $4 6mn net income excluding the impact of Time with Yuhui disposal [5] - Tourism business revenue grew 233% YoY in 2QFY25 [5] Financial Forecasts - FY25E revenue revised down 2 6% to US$ 5 080 9mn with gross profit revised down 3 8% to US $2 721 0mn [6] - FY25E non-GAAP net income revised down 15 0% to US$ 439 4mn with EPS revised down 15 0% to US $2 7 [6] - Gross margin expected to be 53 6% in FY25E down 0 7ppt from previous forecast [6] Valuation - Educational and consulting business valued at US$ 77 1 (96% of total valuation) based on 28x FY25E PE [8] - East Buy valued at US $1 6 (2% of total valuation) based on 8x FY25E PE [8] - Tourism and others business valued at US$ 1 3 (2% of total valuation) based on 10x FY25E PE [8] - Sum-of-the-parts valuation of US $14 773 7mn with a 10% holdco discount resulting in a total valuation of US$ 13 296 3mn [9] Peer Comparison - Education sector average PE of 28 4x for FY25E and 16 1x for FY26E [11] - E-commerce sector average PE of 8 0x for FY25E and 7 0x for FY26E [11]