Workflow
New Oriental Education & Technology (EDU)_ Addressing investor queries on draft regulation in Beijing, new HQ building plans, and implications for overseas study
Berkeley·2024-11-10 16:41

Summary of New Oriental Education & Technology (EDU) Conference Call Company Overview - Company: New Oriental Education & Technology (EDU) - Ticker: EDU (H-share: 9901.HK) - Market Cap: 10.3billion−∗∗EnterpriseValue∗∗:10.3 billion - **Enterprise Value**: 5.0 billion - Current Price: 61.87(TargetPrice:61.87 (Target Price: 87.00, Upside: 40.6%) [2][4] Key Industry Insights - Regulatory Environment: - Recent draft regulations from Beijing emphasize that after-school tutoring (AST) institutions must comply with the Double Reduction policy, restricting the approval of new academic AST institutions [8][10]. - The draft specifies that local governments cannot approve new academic AST institutions for students in grades 1-9 and high school, requiring existing institutions to re-register [8][9]. - The regulatory landscape is expected to remain stable, aligning with previous national policies [10]. - Market Dynamics: - Offline licensed subject tutoring supply has been in continuous decline year-to-date, while growth in offline non-academic tutoring has moderated [11]. - As of November 2024, there are 297 academic and 1,044 non-academic tutoring institutions in Beijing [11]. Financial Performance and Projections - Revenue Growth: - Projected revenue growth for FY24-27E is 23% CAGR, with EPS growth at 34% CAGR [36]. - Revenue estimates for FY25E are 5,165.4million,withEBITDAof5,165.4 million, with EBITDA of 718.0 million [2]. - Cash Management: - The company has a net cash position of approximately 3.1billion,excludingdeferredrevenue[34].−Managementhascommittedtoreturningcapitaltoshareholders,includinga3.1 billion, excluding deferred revenue [34]. - Management has committed to returning capital to shareholders, including a 100 million special dividend and 300millioninsharebuybacksforFY24[20].StrategicDevelopments−∗∗NewHeadquarters∗∗:−Plansforanewheadquartersbuildingwithagrossfloorareaof200,000sqmareunderwaytoaccommodateagrowingworkforce,withcompletionexpectedin3−5years[18].−Thecompanyanticipatesa10−15300 million in share buybacks for FY24 [20]. Strategic Developments - **New Headquarters**: - Plans for a new headquarters building with a gross floor area of 200,000 sqm are underway to accommodate a growing workforce, with completion expected in 3-5 years [18]. - The company anticipates a 10-15% CAGR in total headcount from FY24-27E [18]. - **Overseas Study Demand**: - Demand for overseas study has rebounded, with the US accounting for less than 20% of total overseas study demand for Chinese students [7][23]. - The number of US F-1 student visas issued to Chinese students has decreased by 4% year-over-year, remaining 22% below FY19 levels [23][32]. Investment Thesis - **Valuation**: - The current valuation is considered appealing, with a forward P/E multiple below historical averages [36]. - Target prices are set at 87 for EDU and HK$68 for 9901.HK based on a sum-of-the-parts (SOTP) analysis [7][34]. - Risks: - Key risks include potential regulatory changes, weaker-than-expected capacity expansion, and geopolitical factors affecting demand for overseas test preparation [34]. Conclusion - Outlook: - New Oriental Education & Technology is positioned for growth in a stable regulatory environment, with a strong focus on expanding its educational services and managing shareholder returns effectively [36].