Broker: UOB Kay Hian
Date of Report: Thursday, 31 July 2025

New Oriental Education & Technology Group Surprises with Earnings Beat, Eyes Gradual Recovery in FY26

Company Overview: New Oriental Education & Technology Group

Ticker: EDU US
Sector: Consumer Discretionary
Share Price: US\$44.37
Target Price: US\$55.00 (Down from US\$64.00)
Upside: +24.0%
Market Cap: US\$7,342.4 million
Shares Issued: 163.5 million
52-Week Range: US\$87.26 / US\$40.66

New Oriental Education & Technology Group (EDU) is a leading provider of educational services in China, including foreign language training, test preparation, K12 after-school tutoring, and online offerings.

Share Price Performance and Major Shareholders

• 1-month: -17.1%
• 3-month: -8.1%
• 6-month: -6.9%
• 1-year: -36.2%
• YTD: -30.0%

Major Shareholders:

• GIC Pte Ltd: 5.5%
• Aspex Management HK Ltd: 3.6%
• Morgan Stanley: 3.4%

Q4 FY25 Results: Outperforming Expectations

New Oriental Education reported a strong Q4 FY25, with revenue up 9% year-over-year to US\$1,243 million—5% ahead of both internal and consensus forecasts. Non-GAAP net profit reached US\$98 million, up 59% year-on-year, and net margin expanded by 2 percentage points to 8%. Gross profit surged 13% to US\$673 million with a gross margin of 54%.

Growth Drivers and Segment Performance

• Overseas Test Preparation & Consulting: Revenue rose 15% and 8% year-on-year, respectively.
• Domestic Test Preparation (Adults/University): Saw robust 19% year-on-year growth.
• Educational Business Initiatives: Revenue surged 32.5% year-on-year.
• Non-Academic Tutoring: Offered in 60 cities with 918,000 student enrollments in Q4 FY25.
• Intelligent Learning Systems: Adopted in 60 cities, 255,000 active paid users in Q4 FY25.

Margin Trends and Investments

• Gross margin improved by 2 percentage points to 54% in Q4 FY25.
• Sales & Marketing expenses increased 3% year-on-year to US\$215 million, mainly due to a US\$28 million investment in OMO (online-merge-offline) teaching infrastructure.
• Non-GAAP operating margin shrank to 2% (down 2 ppt year-on-year), impacted by a one-off impairment in the kindergarten business.

Financial Highlights and Outlook

Guidance and Strategic Direction for FY26

• 1Q FY26 revenue is forecasted to rise 2-5% year-on-year to US\$1,464.1-1,507.2 million, below market expectations due to seasonality and a weaker macro environment.
• Revenue from overseas test preparation is projected to decline 4-5% year-on-year, attributed to geopolitical uncertainties and tighter US visa approvals.
• High school segment is guided to grow 11-12% year-on-year, while K-9 segment is expected to increase by 15-16% year-on-year in 1Q FY26.
• Domestic university test preparation revenue will maintain 10% year-on-year growth.
• Non-GAAP net margin for 1Q FY26 and FY26 is guided to improve by 0.5ppt and 1.5ppt year-on-year to 19% and 12%, respectively, driven by cost control and AI integration.
• FY26 overall revenue growth is now guided at 5-10% (down from previous 11-12%), mainly due to pressure in overseas business segments. K-9 initiatives are anticipated to grow 20% year-on-year and become the main growth driver.
• High school segment to grow 11-12% in FY26, with acceleration expected in 2H FY26.

Shareholder Return Plan

• A new three-year shareholder return plan was approved, commencing FY26.
• No less than 50% of FY26 net income will be returned to shareholders through dividends or share repurchases.

Earnings Revision and Risks

• 1Q FY26 and FY26 revenue forecasts have been cut by 12% and 7%, respectively, reflecting weaker growth in overseas education and tourism revenue.
• Risks include margin pressure from heavy investment, uncertainties in regulatory policy, and US-China tensions affecting overseas operations.

Valuation and Recommendation

• Rating: Maintain BUY
• Target Price: US\$55.00, based on SOTP valuation (implies 15.7x FY26F PE vs. a 19% three-year EPS CAGR)
• The stock is trading at 12.6x FY26F PE, below its five-year average.

SOTP Valuation Table

Key Investment Catalysts

• Rising demand for overseas education.
• Ongoing market consolidation.
• Growth in lower-tier cities and increased online education penetration.

Conclusion: Outlook and Investment Case

Despite near-term headwinds from overseas regulatory uncertainties and macroeconomic softness, New Oriental Education & Technology Group retains its competitive edge through diversified growth drivers—especially in K-9 and high school segments—and strong cost controls. The new shareholder return policy, robust net cash position, and AI-driven margin expansion initiatives provide additional support for long-term value creation. With the stock trading below historical averages and a solid upside to target price, New Oriental remains an attractive opportunity for investors seeking exposure to China’s evolving education sector.