Results for the 2nd quarter of FY2024: Revenue increased 36% year over year to US$870 million, exceeding our agreed expectations of 6%/7%, driven by the growth of teaching services and Oriental Selection's entire business line. Adjusted operating profit of US$51 million, operating margin of 5.9%, compared with 2.6% in the same period last year; adjusted net profit of US$50 million compared to our expectations of US$57 million and Bloomberg's agreed expectation of US$45 million, corresponding to a net interest rate of 5.8%, compared with 2.8% in the same period last year, thanks to increased operating leverage due to revenue growth.

Performance highlights: 1) Traditional business: Study abroad examination/consultation revenue increased 47%/32% year over year, with strong demand, contributing 21% in total revenue; income of adults and college students increased by 43%, contributing 6% to revenue. 2) New business: We estimate that revenue contributed about 23-24%, an increase of 3-4 percentage points over the same period last year. Among them, 786,000 students were enrolled in non-subject training quarters, an increase of 65% over the previous year, and demand grew strongly; the number of smart hardware payers increased 68% year over year to 180,000, thanks to new users and increased retention rates. 3) The number of teaching sites continued to expand, reaching 843 as of November 30, an increase of 135/50 (+19%/6%), maintaining a reasonable pace of expansion. The full year of 2024 increased 20% year-on-year, and the utilization rate further improved. 3) Oriental Selection: Driven by both traffic and products, increasing the layout and self-management (reaching 264 self-operated SKUs, compared with 120+ in FY2023), contributing 20% + of New Oriental's total revenue.

Outlook: Management's revenue guidance for the next quarter (42-45% year-on-year increase) exceeded previous market expectations by about 15%, and the revenue guidance for the 2024 fiscal year was raised from 30-35% to 35-40%. Traditional education services and innovative businesses continued to be driven by demand and supply concentration trends. Oriental Selection accelerated growth in the second half of the year, driven by the new “Walk with Hui” account and the company's strategic layout of multiple accounts, multiple channels and proprietary products. In terms of operating profit, Oriental Choice's profit margin may be on a downward trend during the expansion process, but the profit margin of the education service-related business continues to be optimized. It is expected that the operating profit margin for the 3rd quarter of FY2024 will increase 1 percentage point to 12.7% year over year, and 4 percentage points to 13% year on year for the full year of fiscal year 2024.

Valuation: We raised revenue by 8%/10% and profit expectations by 6%/8% for the 2024/25 fiscal year. Considering the steady growth of the learning machine business and better-than-expected profit margins, the valuation was adjusted to be consistent with other teaching services (20 times price-earnings ratio), and the target price was raised from HK$70 /$90 to HK$75 /$96 (EDU US) according to SOTP, corresponding to the 34/26 times price-earnings ratio and profit growth rate of 86%/32% in FY2024/25 to maintain purchases.