On the evening of October 25, New Oriental Online (01797. HK) announced on the Hong Kong Stock Exchange that it will stop operating off-campus training services Chinese mainland subjects at the compulsory education stage. The announcement quickly sparked a heated discussion.
Since then, New Oriental (09901. HK;EDU.US) Guangzhou, Wuhan, Changsha, Hangzhou, Xiamen, Fuzhou and other places have issued emergency statements saying that the recent "announcement on the adjustment of new oriental online business scope" has caused public discussion and misunderstanding, and it is stated that "new oriental online" does not equal "new oriental branches".
New Oriental Online announced the suspension of K9 subject off-campus training
Local campuses issued emergency declarations
At around 20:00 on 25 October, New Oriental Online announced on the official website of the Hong Kong Stock Exchange that, in accordance with the new regulations and in order to ensure that the Group and its operations fully comply with all applicable legal and regulatory requirements, the Board of Directors of the Company has decided that the Group will cease to operate Chinese mainland subject-based off-campus training services for students in the compulsory education stage, which are provided to students from kindergarten to grade 9 (K-9 or compulsory education) in Chinese mainland. The termination is expected to take effect by the end of November 2021.
New Oriental Online said that after the closure of the K9 business, the board of directors will continue to seek appropriate strategic opportunities to achieve maximum value after the termination of the K9 business, and will inform shareholders of the latest situation in due course. "We will continue to run businesses that are not related to compulsory education and shift our focus and resources to other educational products and services, explore new business opportunities, and continue to be 'lifelong learning partners' for students."
The news that the education giant officially announced the termination of the K9 business stirred up thousands of waves for a time. Subsequently, New Oriental Guangzhou, Wuhan, Changsha, Hangzhou, Xiamen, Fuzhou and other branches have issued emergency statements, saying that the recent "announcement on the adjustment of New Oriental's online business scope" has aroused public discussion and misunderstanding, and hereby declares that "New Oriental Online" is an online education website under New Oriental Group, which is not equal to "New Oriental Branches Around".
Emergency declarations for each branch
On October 28, the relevant responsible persons of New Oriental Beijing School, New Oriental Shanghai School and New Oriental Chengdu School also responded to The Red Star Capital Bureau that the courses that have started in the autumn have not been affected in any way and will continue until the end of the course, which is about the end of December.
As for the follow-up K9 curriculum arrangement, New Oriental Beijing School said it was "still uncertain", and New Oriental Shanghai School said that "there is no class arrangement for winter vacation".
According to the Tianyancha APP, New Oriental Online is a professional online education website under New Oriental. In March 2019, New Oriental Online was listed on the Hong Kong Stock Exchange, becoming the "First Stock of Online Education in Hong Kong Stocks".
The K9 business accounts for about one-third of New Oriental Online's revenue
Notably, the announcement mentions that the Board expects the termination to have a material adverse effect on the Group's total revenue for the financial year ended 31 May 2022 and subsequent periods, but will have a positive impact on the Group's profit.
Red Star Capital Bureau calculated that the termination of the K9 business meant that New Oriental Online lost nearly one-third of its revenue sources. According to the announcement, for the two financial years ended 31 May 2021, the K9 business accounted for approximately 58% to 73% of the K12 (Kindergarten to High School) Education Segment in terms of total revenue contribution. According to the 2021 financial report, the K12 business accounts for 55% of the total revenue, and it is roughly estimated that the K9 business brings more than 30% of the revenue (accounting for about 32% to 40%) of the revenue of New Oriental Online.
K9 business is the main revenue sector of New Oriental Online during the epidemic period, and it is also the main segment of various expenditures. In fiscal 2021, the net cash outflow from New Oriental Online's operating activities reached 910 million yuan, of which online sales and marketing expenses reached 1.189 billion yuan, research and development expenses were 444 million yuan, and administrative expenses were 259 million yuan, an increase of 36.35%, 40.06% and 40.76% respectively over the same period last year.
However, high spending does not lead to high returns. According to the financial report, in fiscal 2021, New Oriental Online lost 1.658 billion yuan during the year, an increase of 118.73% compared with the same period last year.
The termination of the K9 business is a helpless move by New Oriental Online under the "double reduction" policy, and it is also an operational adjustment of New Oriental Online's high-growth and high-loss business during the epidemic.
Red Star News reporter Yu Yao intern reporter Cai Xiaoyi
Responsible editor Ren Zhijiang Editor Yang Cheng
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