Date: October 24, 2024
Broker: UOB Kay Hian

Company Overview

New Oriental Education & Technology Group offers educational services including foreign language training, test preparation courses, K-12 after school tutoring services, and online courses in China.

Stock Data

• Share Price: US$62.15
• Target Price: US$85.00
• Upside: +36.8% (Previous Target Price: US$90.00)
• GICS Sector: Consumer Discretionary
• Bloomberg Ticker: EDU US
• Shares Issued: 165.5 million
• Market Cap: US$10,069.1 million
• 3-Month Avg Daily Turnover: US$160.3 million
• 52-Week High/Low: US$97.23 / US$58.32

Major Shareholders

• Yu Minhong: 12.0%
• Norges Bank: 5.0%
• Vanguard Group: 3.7%

Financial Performance (1QFY25)

• Revenue: US$1,435 million (30% YoY growth)
• Net Profit: US$265 million (40% YoY growth)
• Net Margin: 18% (up 1ppt YoY)

Yearly Financial Overview

• 1QFY24: Revenue of US$1,100 million
• 4QFY24: Revenue of US$1,137 million
• 1QFY25: Revenue of US$1,435 million
• Non-GAAP Net Profit:
  • 1QFY24: US$189 million
  • 4QFY24: US$37 million
  • 1QFY25: US$265 million

Key Financial Metrics

• Gross Profit (1QFY25): US$852 million (29% YoY growth)
• Gross Margin: 59% (down 1ppt YoY)
• Operating Profit (1QFY25): US$293 million (43% YoY growth)
• Non-GAAP Operating Profit (1QFY25): US$300 million (23% YoY growth)

Growth Drivers

• Resilient overseas test preparation and study consulting revenue grew by 18.8% and 20.7% YoY respectively.
• Revenue from domestic test preparation targeting adults and university students grew by 30.4% YoY.
• Educational business initiatives revenue surged by 49.8% YoY.
• Non-academic tutoring courses offered in around 60 cities attracted 484,000 student enrollments in 1QFY25.

Outlook

• 2QFY25 Guidance: Revenue (excluding East Buy) is expected to rise by 25-28% YoY to between US$851.4 million and US$871.8 million.
• Anticipated challenges include weak seasonality impacting premium services and subdued momentum in overseas test preparation and consulting.
• Strategic adjustments are being made to address these challenges.

Share Repurchase Program

As of October 22, 2024, New Oriental Education & Technology Group has repurchased an aggregate of 9.8 million American Depository Shares (ADS) for US$457.9 million, representing 4.2% of total market cap. The company has extended the Share Repurchase Program to May 31, 2025, increasing the aggregate value of shares authorized for repurchase from US$400 million to US$700 million.

Conclusion

New Oriental Education & Technology Group is maintaining a “BUY” recommendation with a revised target price of US$85.00, suggesting significant upside potential despite facing growth challenges in a competitive educational landscape.