New Oriental Education & Technology Group, one of the two leading figures in China's education industry, today released results for the third quarter of the fiscal year, with a pre-market price of $91.55, up 5.45 per cent. The following Futu information will take you to interpret New Oriental Education & Technology Group's Q3 quarterly results.

Financial summary of the third fiscal quarter

• Net income in the third quarter of 2018 totaled $618.1 million, up 41.2% from a year earlier.

• Operating profit in the third quarter of 2018 was $58.4 million, up 1.5 per cent from a year earlier.

• Net profit in the third quarter of 2018 was $68.4 million, up 1.1 per cent from a year earlier.

II. Financial performance

• Net income
  

In the third quarter of 2018, New Oriental Education & Technology Group achieved a net income of US $618.1 million, an increase of 41.2% over the same period last year. Net profit on education programs and services was $564.8 million in the third quarter, up 43.0 per cent from a year earlier. The increase was mainly due to an increase in the number of students in academic tutoring and exam preparation courses in the last two quarters.

• Operating costs and expenses
  

Operating costs and expenses for the quarter were $559.7 million, up 47.2% from a year earlier. Non-GAAP operating costs and expenses (excluding equity incentive fees) were $536.9 million in the quarter, up 44.3 per cent from a year earlier.

Revenue costs rose 46.5 per cent year-on-year to $268.8 million, mainly due to increased operating costs due to teachers compensating for more teaching time and rental costs for more schools and learning centers.

Sales and marketing expenses increased by 38.2% year-on-year to $77.2 million, mainly due to increases in brand promotion costs and compensation for sales and marketing personnel.

Total administrative expenses for the quarter were $213.7 million, up 51.7% from a year earlier. Non-GAAP general and administrative expenses, excluding equity incentive fees, were $199 million, an increase of 43.9% over the same period last year, mainly due to an increase in the number of employees in the company's expanded network of schools and learning centers. and increased research and development costs and human resources expenses related to the development of an online and offline integrated education ecosystem.

With a total of 1.5 million restricted stock units granted to the company, total equity incentive fees allocated to related operating costs and expenses increased by 175.6 per cent to $22.8 million in the third quarter of 2018. Employees and directors were classified for three years on October 27, 2017.

• Operating profit and operating profit margin
  

Operating profit for the quarter was $58.4 million, up 1.5 per cent from $57.5 million in the same period in the previous fiscal year. Operating profit for the quarter was $81.2 million, up 23.4% from $65.8 million in the same period of the previous fiscal year.

Operating margin (excluding equity incentive fees) was 13.1% in the quarter, compared with 15.0% in the same period of the previous fiscal year.

• Net profit and EPS
  

The quarterly net profit attributable to New Oriental Education & Technology Group was $68.4 million, up 1.1 per cent from the same period in the previous fiscal year. New Oriental Education & Technology Group's basic and diluted income per ADS is US $0.43 and US $0.43 respectively.

• Cash flow

Net operating cash flow in the third fiscal quarter of 2018 was approximately $108.2 million. Capital expenditure for the quarter was $60 million, mainly due to the opening of five new schools and 66 learning centres and renovation projects in existing learning centres.

• Balance sheet

New Oriental Education & Technology Group's cash and cash equivalents were $721.5 million as of February 28, 2018, compared with $641 million as of May 31, 2017. In addition, the company's term deposit is US $113.5 million, short-term deposit is US $1.6825 billion, and long-term investment.

By the end of the third quarter of fiscal year 2018, New Oriental Education & Technology Group's deferred income balance (based on course cash received by enrolled students and pro rata recognition as income according to delivery instructions) was $1.0838 billion, an increase of 42.5% from $760.5 at the end of the third quarter of fiscal year 2017.

III. Business highlights

• Continue to maintain the strong momentum of growth

Revenue increased by 41.2%, exceeding initial expectations. The revenue balance at the end of the quarter was $1.0838 billion, up 42.5 per cent from a year earlier, mainly due to a 30 per cent increase in student enrollment in the second and third quarters of fiscal 2018.

The KMel 12 general extracurricular tutoring business accelerated its growth momentum in the third quarter, resulting in a significant year-on-year increase of 51 per cent. In addition, the U-Can general and high school extracurricular tutoring business also recorded about 51 per cent revenue growth, while POP Kids plans to grow by about 50 per cent year-on-year, continuing to boost the cash income of enrollment and student enrollment by about 40 per cent and 65 per cent respectively.

• Optimize market strategy: keep a healthy balance between revenue and profit growth

In the previous three years, New Oriental Education & Technology Group continued to accelerate the expansion of the city's growth potential and improve operational efficiency, making significant progress, adding 47 learning centers in 23 existing cities, opening two new schools in Lianyungang and Yancheng, and establishing three double normal model schools and eight learning centers in Jiaozuo. Dongguan and Haikou have set up three double normal model schools and eight learning centers, with a total classroom area increase of about 41 per cent at the end of the quarter compared with the same period last year.

At the same time, it strengthens the online and offline integrated standardized teaching system in Kmur12 business, and deploys a standardized teaching system in overseas examination preparation business. In addition, continuing to build online business and increasing investment in Koolearn.com, a pure online education platform, Koolearn.com achieved year-on-year revenue growth of about 63 per cent in the quarter, with registered and paying users growing by about 88 per cent and 70 per cent respectively. Through solid resource support and a series of new initiatives, the revenue of the online Kmuri 12 after-class tutoring business increased by about 176% year-on-year.

• Capacity expansion strategy, profit margin short-term headwind

The operating profit margin of the language training and test preparation business fell 1.4% year-on-year, the same as the previous quarter, and profit margin pressure is expected to gradually decrease and increase in the fourth quarter and in the future. Because New Oriental Education & Technology Group's focus is still on improving operational efficiency, facility utilization and cost control.

IV. Prospects for the future

New Oriental Education & Technology Group expects total net profit in the fourth quarter of fiscal 2018 (March 1, 2018 to May 31, 2018) to be between $661.4 million and $689 million, up 36 to 40 per cent from a year earlier.

(editor / Yang Weiyi)