Incident: FY24Q2's net revenue of US$870 million (yoy +36.3%, in US dollars, same below) surpassed previous performance guidelines (US$790 to US$80 million). The new education business continued to grow rapidly, and the network expanded steadily. By business, preparation for FY24Q2 overseas exams increased 46.5% year on year, overseas consulting business increased 31.7% year on year, college student exam preparation business increased 42.7% year on year, and new education business increased 68.3% year on year. As of 2023/11/30, the company's deferred revenue reached $1.65 billion (yoy +44.4%). The company expects the revenue growth rate of FY24Q3 to be 42-45%, which is a further increase over the year-on-year growth rate compared to FY24Q2.
The number of outlets has been steadily expanding, and profit margins have improved markedly due to scale effects. FY24Q2 continues to expand the number of outlets and moderately expand the area of existing outlets. As of 2023/11/30, the total number of New Oriental schools and learning centers increased to 843. The expansion rate was slightly higher than FY24Q1. It is expected to increase by about 20% year-on-year by the end of the FY24 fiscal year. The number of FY24Q2 outlets has recovered to 54% of FY21Q4's all-time high, while revenue has recovered to 72% of FY21Q4, which means that network utilization may have increased. Strong demand combined with increased efficiency has led to significant improvements in profit margins.
FY24Q2 non-GAAP operating profit was USD 50 million (yoy +212.2%), non-GAAP operating margin was 5.9% (yoy+3.3pct); non-GAAP net profit to mother was USD 50 million (yoy +182.6%).
Revenue from new education businesses is growing rapidly, and research and cultural tourism businesses are diversifying. Revenue from the new FY24Q2 New Oriental education business increased 68% year over year. Among them, the number of quarterly applicants for the non-subject training business reached 786,000, the smart learning equipment business was launched in about 60 cities, and the number of active paying users was 180,000. The operating profit margin of the new FY24Q2 education business is about 19-20%, and the company is expected to continue to increase. Research and cultural tourism has diversified, and the coverage has expanded from student groups and middle-aged people to all age groups. Cultural tourism companies have been registered in many parts of the country. More than half of the winter vacation research programs have been sold out, and summer vacation research projects are also in good demand.
Profit forecast and investment rating: FY24Q2's revenue growth exceeded previous performance guidelines, and the non-GAAP operating margin increased 3.3 pcts year over year. Based on the company's rapid growth in deferred revenue, the steady pace of network expansion, and the low base effect of FY23Q3, we expect FY24Q3's revenue to grow or continue to accelerate. We raised FY24-26's non-GAAP net profit from US$40/51/60 million to US$4.1/5.2/63 billion. The current share price corresponding PE is 32/25/21X (converted according to the 2024/01/29 USD/HKD exchange rate of 7.8125), maintaining the “buy” rating.
Risk warning: Risk of changes in high school subject training policies, loss of talent and brand reputation risk, increased risk of competition in the education industry, and risk of new business development falling short of expectations.