Incident: According to the FY2024Q3 financial report, FY24Q3 achieved revenue of US$1.257 billion, an increase of 60% year on year. The previous guide was an increase of 42%-45%, mainly due to the increase in revenue driven by the new education business and Oriental's selection of proprietary products and live e-commerce business; non-GAAP operating profit of US$141 million, up 60% year on year, corresponding to non-GAAP operating margin of 13.7%, up 4.3 pct year on year; net profit to mother of US$87 million, up 6.8% year on year.
By business, the new education business grew the fastest, with a year-on-year increase of 73%.
1) Original education business: FY24Q3 overseas exam preparation and overseas consulting services increased by 53% and 26%, respectively, and domestic exam preparation business increased by 53.2%;
2) New business: FY24Q3's new education-related business revenue increased 72.7% year-on-year; the number of applicants for the non-subject tutoring business this quarter was about 355,000; the number of active paying users of intelligent learning systems and devices this quarter was about 188,000;
3) Number of outlets: The total number of schools and learning centers in FY24Q3 increased by 68 to 911 over the previous month, and FY24Q1/Q2 opened 793/843 stores.
FY2024Q4 outlook: The education business is expected to continue to grow in FY24Q4. New Oriental expects total net revenue for FY24Q4 to be between US$1,102 billion and US$1,127 million, an increase of 28% to 31% year over year.
Profit forecast and investment advice: The company's FY24Q3 revenue growth exceeded the upper limit of previous guidelines, but the growth rate of net profit to mother was weaker than the revenue growth rate. On the one hand, the new education business increased rapidly, and on the other hand, Dongfang Select's profit margin declined. As the peak summer education and training season approaches, the company will continue to benefit from the optimization of the competitive landscape after supply is cleared. We expect the company's net profit to be US$3.5/5.2/680 million in FY2024-2026, respectively. The current stock price corresponds to PE of 46/31/23X, maintaining the “recommended” rating.
Risk warning: New business development falls short of expectations, industry competition intensifies, macroeconomic fluctuations affect consumption, etc.