New Oriental Earnings: Raise Fair Value Estimate on Better Outlook

Equity Analyst

Cheng Wang

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After terminating its K-9 academic after-school tutoring in 2021, New Oriental identified five new business initiatives: 1) nonacademic tutoring; 2) intelligent learning systems and devices; 3) study tours and research camps; 4) educational materials and digitalized smart study solutions; and 5) exam preparation courses designed for students with junior college diplomas to obtain bachelor’s degrees. Among the five initiatives, we think the first two initiatives present decent opportunities, given New Oriental’s expertise in after-school tutoring and curriculum development. The new initiatives collectively accounted for about 17% of revenue in the fiscal quarter-ended February 2023. We expect these initiatives to contribute 23% of revenue by fiscal 2027.

The remaining businesses are primarily overseas test preparation, overseas study consulting, and high school academic after-school tutoring. New Oriental has built a strong reputation in overseas-related business during the last three decades. We expect overseas-related business to grow at 5%-20% annually through fiscal 2027. We estimate overseas-related business will still represent about 22% of revenue by fiscal 2027. We assume revenue from high school academic after-school tutoring will grow moderately at 3%-12% annually, accounting for about 21% of revenue by fiscal 2027.

New Oriental’s online education subsidiary East Buy achieved big success in livestreaming e-commerce. The gross merchandise value of its Dong Fang Zhen Xuan account was among the highest in Douyin, the Chinese TikTok. Despite East Buy's leading position in livestreaming e-commerce, this business is becoming increasingly competitive. We project East Buy to grow at 10%-23% annually, contributing less than 30% of revenue by fiscal 2027.

New Oriental’s legacy businesses are all profitable. The new initiatives also turned profitable in the first quarter of fiscal 2023. We forecast net margin to reach 6.3% in 2023 and improve to 8.1% as businesses scale up.

Business Strategy & Outlook

We do not think New Oriental has a moat.

New Oriental is a leading private education service provider in China. K-9 academic after-school tutoring accounted for 50%-60% of total revenue before it was terminated in 2021 after new industry regulations required that this business be nonprofit. New Oriental’s remaining established businesses mainly consist of overseas test preparation, overseas study consulting, and high school (grades 10-12) academic after-school tutoring. We estimate overseas-related business and high school academic after-school tutoring each accounted for 10%-20% of revenue before the 2021 policy disruption.

New Oriental started with overseas test preparations. It provides tutoring on various tests such as TOEFL and GRE to those who want to study overseas. New Oriental has built a strong reputation in overseas test preparation over the last three decades, but we are not fully convinced of a moat in this business. New Oriental does not own any test, it only provides tutoring. The entry barrier is low, and we do not see anything that cannot be replicated by competitors over time. We think teachers are the key assets for overseas test preparation, but experienced teachers often start their own business after gaining recognition from students. Overseas study consulting is a student placement business. The market is fragmented and the entry barrier is low. The services are undifferentiated, labor-intensive, and unscalable. We think it is unlikely that such a business will develop a moat. High school academic after-school tutoring carries very high policy risk. It is already regulated like K-9 academic after-school tutoring by some local governments.

None

Economic Moat

New Oriental Education & Technology Group

New Oriental Education & Technology Group, Inc. is a holding company, which engages in the provision of private educational services. It operates through the following segments: Educational Services and Test Preparation Courses; Online Education and Other Services; Overseas Study Consulting Services; and Others. The company was founded by Min Hong Yu and Yong Qiang Qian on November 16, 1993 and is headquartered in Beijing, China.

Earnings data Q2 2023

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BEIJING , June 6, 2023 /PRNewswire/ -- New Oriental Education & Technology Group Inc. ("New Oriental" or the "Company") (NYSE: EDU and SEHK: 9901), a provider of private educational services in China, today announced that its board of directors has authorized the Company to extend its share repurchase program launched in July 2022 (the "Share Repurchase Program"), over the next twelve months through May 31, 2024. As of May 31, 2023, the Company had repurchased approximately US$191 million worth of its ADSs under the Share Repurchase Program, and a balance of approximately US$209 million authorized under the Share Repurchase Program had not been utilized.

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BEIJING , April 19, 2023 /PRNewswire/ -- New Oriental Education & Technology Group Inc. (the "Company" or "New Oriental") (NYSE: EDU/ 9901.SEHK), a provider of private educational services in China, today announced its unaudited financial results for the third fiscal quarter ended February 28, 2023, which is the third quarter of New Oriental's fiscal year 2023. Financial Highlights for the Third Fiscal Quarter Ended February 28, 2023 Total net revenues increased by 22.8% year over year to US$754.2 million for the third fiscal quarter of 2023.

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BEIJING , April 3, 2023 /PRNewswire/ -- New Oriental Education and Technology Group Inc. (the "Company" or "New Oriental") (NYSE: EDU/ 9901.SEHK), a provider of private educational services in China, today announced that it will report its financial results for the third quarter ended February 28, 2023, before the U.S. market opens on April 19, 2023. New Oriental's management will host an earnings conference call at 8 AM on April 19, 2023, U.S. Eastern Time (8 PM on April 19, 2023, Beijing/Hong Kong Time).

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New Oriental Education & Technology Group Inc. (NYSE:EDU ) Q2 2023 Earnings Conference Call December 17, 2022 8:00 AM ET Company Participants Sisi Zhao - Director of Investor Relations Stephen Yang - Executive President & Chief Financial Officer Conference Call Participants Felix Liu - UBS Lucy Yu - Bank of America Candis Chan - Daiwa Operator Good evening and thank you for standing by for New Oriental's Fiscal Year 2023 Second Quarter Results Earnings Conference Call. At this time, all participants are in listen-only mode.

New Oriental Education & Technology Group Inc. (EDU) Q2 2023 Earnings Call Transcript

BEIJING , Jan. 17, 2023 /PRNewswire/ -- New Oriental Education & Technology Group Inc. (the "Company" or "New Oriental") (NYSE: EDU/ 9901.SEHK), a provider of private educational services in China, today announced its unaudited financial results for the second fiscal quarter ended November 30, 2022, which is the second quarter of New Oriental's fiscal year 2023. Financial Highlights for the Second Fiscal Quarter Ended November 30, 2022 Total net revenues decreased by 3.1% year-over-year to US$638.2 million for the second fiscal quarter of 2023.

New Oriental Announces Results for the Second Fiscal Quarter Ended November 30, 2022

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