On April 24, New Oriental-S released its report for the first three quarters of fiscal year 2024. As of February 29, 2024, the company achieved net revenue of approximately US$1.207 billion, an increase of 60.1% year-on-year, operating profit of approximately US$113 million, an increase of 70.6% year-on-year, and net profit attributable to shareholders of approximately US$87.167 million, an increase of 6.8% year-on-year.
For the significant increase in net revenue during the reporting period, New Oriental-S attributed the main reason to the company's new business of education attributes, as well as the increase in revenue driven by Dongfang's self-operated products and live broadcast e-commerce business.
In terms of education business, as of February 29, 2024, the total number of schools and learning centers opened by New Oriental was 911, an increase of 68 from the previous quarter (as of November 30, 2023) and an increase of 199 from the previous year (as of February 28, 2023). Among them, as of the end of the reporting period, the total number of New Oriental-S schools was 81.
In this regard, Yu Minhong, executive chairman of the board of directors of New Oriental, said that revenue increased by 60.1% year-on-year in the third quarter. Overseas test preparation and overseas consulting business maintained their growth momentum, showing year-on-year growth of approximately 52.6% and 25.7%, respectively. At the same time, the domestic test preparation business for adults and university students recorded a year-on-year increase of approximately 53.2%. The revenue of new education business increased by 72.7% year-on-year. Among them, the non-academic tutoring business was launched in nearly 60 cities in the fiscal quarter, with 355,000 applicants, and the intelligent learning system and equipment were adopted in about 60 cities, with 188,000 active paying users in the fiscal quarter.
As for the live streaming e-commerce business, Zhou Chenggang, CEO of New Oriental, said frankly that he will continue to invest in the development of "Oriental Selection", strengthen the development of its self-operated products, and expand to different channels to attract a larger customer base with high-quality products and innovative live broadcast content. At the same time, it will also implement more comprehensive measures for Oriental Selection, including strengthening the supply chain system to better control food safety and product quality, expanding product categories and increasing SKUs, and striving to provide high-quality and value-for-money products.
Dolphin Investment Research believes that although Dongfang Selection currently contributes more than 20% of the revenue, due to the poor business model, low profitability, and the future of high star anchor exodus, moral hazard, competition substitution, supply chain management and other uncertainties, so it tends not to give too high expectations to the valuation of live broadcasts. At the beginning of April this year, Dongfang Selection officially launched the "Hour" service and launched it on the Douyin "Dongfang Selection Hour" account, but at present, only the Beijing market is opened, and the user experience is not yet known.
In the report, BOCOM International pointed out that New Oriental-S's revenue is expected to increase by 38% to US$1.18 billion in the fourth quarter of fiscal 2024, and the current management guidance is an increase of 28%-31%. It is expected that the operating profit margin may decrease by 3 percentage points year-on-year to 6%, mainly due to the increase in investment in Oriental Selection, the off-season of education business, and the investment in cultural tourism. After the release of the company's results, the U.S. stock price closed down nearly 14%, mainly due to short-term pressure on profit margins, and the current price corresponds to the price-to-earnings ratio of the education business at 20 times. In addition, BOCOM International believes that the demand for education and training and the company's business performance remain stable, and it is expected that the education revenue will increase by 30% in FY2025 and the profit margin will continue to be optimized.
Goldman Sachs issued a research report saying that it maintained the "buy" rating of New Oriental-S, with a slight decrease of 2% from HK$90 to HK$88, and maintained a "neutral" rating on Oriental Selection, with a target price of HK$18.4 from HK$21.5.
At the same time, Goldman Sachs expects that New Oriental-S's core non-GAAP operating profit in fiscal 2024 should be revised upward, mainly driven by revenue and core operating margin. In addition, the acceleration of capacity expansion guidance has given upside to short-term revenues and medium-term profits. Goldman Sachs believes that the worst of Eastern Selection's profitability is behind us, and expects non-GAAP operating margin to improve to 7% in the fourth quarter of fiscal 2024.
Although the company's performance is relatively bright, the weak expectation of the future has caused the stock price to plummet. On April 25, New Oriental-S (09901.HK) fell more than 19% after 5 minutes of opening, and then pulled back slightly, and the decline further narrowed after midday. As of today's close of Hong Kong stocks, New Oriental-S shares closed at HK$62.2, down 12.27%, with a total market capitalization of about HK$102.949 billion. (This article was first published in Titanium Media APP, author|Deng Haotian)