Incident: On the evening of April 24, New Oriental released its three-quarter report for the 2024 fiscal year. From December 2023 to February 2024, we achieved net revenue of US$1,257 million/yoy +60.1%, net profit of US$87 million/yoy +6.8%; operating profit of US$113 million/yoy +70.6%; non-GAAP operating profit (plus equity incentive expenses) of US$141/yoy +60.3%.
Q3 revenue exceeded previous guidance. Q4 revenue is expected to increase by 28-31%. Growth is still strong at a high base.
FY2024Q3's revenue was 1,207 billion US dollars, up 60% year on year, far exceeding previous guidance (10.7-1.09 billion US dollars/yoy+42-45%). By business, revenue from overseas examination/overseas consulting/adult and college students/new education businesses increased by 53%/26%/53%/73%, respectively. In the new education business, the number of non-subject tutoring registrants was 355,000, an increase of 63% over the previous year, and the number of active payers for the intelligent learning system was 188,000, an increase of 74% over the previous year. As of the end of February 2024, the company's deferred revenue balance was US$1.52 billion, up 31% year over year, maintaining a relatively rapid growth rate. According to company guidelines, FY2024Q4 revenue is expected to be 11.015-1,127.3 billion US dollars. The US dollar level is expected to increase by 28 to 31% year on year, and RMB is 34 to 37% year on year. Growth is still strong under a high base.
Store openings continue to accelerate, raising the annual expansion target to 30%, and FY2025 is expected to maintain relatively fast store openings. As of February 29, 2024, the total number of schools and learning centers across the country was 911, an increase of 28% over the previous year. FY2024Q1/Q2/Q3 net stores opened 45/50/68, respectively, and continued to accelerate from month to month. The FY2024 annual store expansion target was raised from a 20% increase to a 30% increase. By the end of May, it is expected to break through 970 rooms, but it has only returned to a high of 58%. According to the company's public results conference, FY2025 is expected to maintain a production capacity expansion of around 30% in order to seize market opportunities and continue to expand its market share. Compared with before 2020, the company's new stores climbed faster, and the time to reach the break-even point was shortened from about 1 year to half a year.
The profit level was slightly lower than market expectations, mainly affected by one-time non-recurring projects and increased short-term investment in Oriental Selection. FY2024Q3's gross profit margin was 46.6%, down 4.4ppt year on year, sales/management expenses ratio 13.4%/23.8% year on year, down 0.3/4.7ppt year on year, operating profit margin 9.4%, +0.6ppt year on year, and the non-GAAP operating margin was 11.7%, which was flat year on year, slightly lower than Bloomberg's agreed forecast of 12.9%. We estimate that the profit margin of the education and training business has increased to a certain extent, while Dongfang Selection's profit margin has declined due to investment in team, supply chain, and multi-platform construction. We expect the impact of the Oriental selection may continue into Q4. FY2024Q3's net interest rate to mother was 7.2%, down 3.6 ppt year on year, non-GAAP net interest rate was 8.7%, down 4.0ppt year on year, mainly due to factors such as one-time equity method investment impairment.
Investment advice: The company is a leader in the domestic private education industry. It has strong brand, teaching and research, and channel advantages, and strong indicators such as revenue and store opening in the education and training sector. The trend has not changed. However, although the Oriental selection business has an impact on profits, it is in the short term.
Combined with the latest quarterly report, we raised FY2024-2026's revenue to US$43.04/56.894 billion (previous value: US$40.809/51.49/US$6.251 billion) and slightly lowered non-GAAP operating profit to US$5.10/720/938 million (previous value was US$537/733/US$963 million). The closing price on April 25, 2024 corresponds to the PE of FY2024-2026's non-GAAP operating profit to 26/ 18/14 times
Risk warning: 1) Risk of stricter policies; 2) New business development falling short of expectations; 3) Increased industry competition; 4) Risk of declining teaching quality and reputation.