Accelerating capacity expansion to address robust demand

Investment Rating - The report maintains a BUY rating for New Oriental with a target price of US$102.50, revised from the previous target of US$104.50, indicating a potential upside of 33.0% from the current price of US$77.08 [2][3]. Core Insights - New Oriental's total net revenue for 3QFY24 increased by 60.1% year-over-year (YoY) to US$1,207 million, surpassing the consensus estimate of US$1,098 million by 10% [2]. - Non-GAAP net income rose by 9.8% YoY to US$105 million, although it fell short of the consensus estimate of US$132 million due to investments in East Buy and rapid capacity expansion affecting margin growth [2]. - The company expects total revenue for 4QFY24 to grow by 28-31% YoY, projecting revenue between US$1,102 million and US$1,127 million, compared to the consensus estimate of US$1,096 million [2]. Financial Performance Summary - For FY24E, total revenue is forecasted at US$4,293 million, with adjusted net profit expected to reach US$456.1 million [6]. - The revenue growth forecast for FY25E and FY26E has been increased by 8-10%, while earnings forecasts for the same periods have been trimmed by 3-6% due to the impact of capacity expansion on margins [2][6]. - The educational business segment showed strong momentum, with overseas test prep and study consulting revenue growing by 52.6% and 25.7% YoY, respectively, contributing approximately 21% to total revenue [2]. Capacity Expansion and Strategic Initiatives - New Oriental's capacity expansion accelerated, with the number of schools and learning centers increasing by 28% YoY to 911 as of the end of 3QFY24 [2]. - The company has raised its capacity expansion plan for FY24, now expecting a 30% YoY increase, up from the previous estimate of 20% [2]. - Investments in East Buy are aimed at enhancing private label product development and supply chain management, which is expected to drive customer base expansion and user engagement [2]. Valuation Methodology - The report employs a sum-of-the-parts (SOTP) valuation, attributing US$91.6 million to the educational and consulting business, US$6.8 million to East Buy, and US$4.2 million to the tourism business, reflecting their respective growth prospects and market positions [7][8].