An established education and training leader, diversified transformation, and an inflection point in business has emerged. The company was founded in 1993 and is an established domestic education and training leader. It initially started with an overseas examination and training business, and then gradually expanded into fields such as general subjects in primary and secondary schools, adults and college students. After the introduction of the 21-year double reduction policy, the company completely stopped training in K9 subjects and began diversified transformation, including 1) focusing on the education industry and actively expanding businesses such as quality literacy education and training, intelligent learning hardware, etc.; 2) developing new business formats such as live e-commerce and research and cultural tourism based on the company's genes. Looking at the present, the company has benefited from the recovery of traditional business needs (expatriate/adult and college student/high school business) + transformation, and the company has returned to profit and growth. FY24Q3's revenue of 1.2 billion US dollars (yoy +60%) has increased in double digits for five consecutive quarters, with non-GAAP net profit of 100 million US dollars, and stable profit for six consecutive quarters.

Industry dimension: Education and training supervision tend to be the norm, supply is optimized, and demand is resilient. 1) Policy side: We believe that education and training supervision policies are becoming more and more normalized, and license approval is gradually being normalized, and subsequent industries are expected to usher in relatively rapid development; 2) Supply side: the double reduction has led to massive supply-side clearance (clearance rate greater than 90%), leading institutions have retained more offline outlets, and the industry competition pattern has improved markedly; 3) Demand side: demand for quality education has not been erased by policies, but is still resilient as market competition intensifies and per capita income levels rise. The country guides the direction, literacy education and subject training include Similar attributes can be used as an alternative to subject education and training to a certain extent, and the penetration rate of literacy education is expected to increase. iResearch estimates that the quality education market will exceed 700 billion yuan in 23, with a CAGR of about 30% in 20-23. In summary, we believe that there is a mismatch between supply and demand in the short-term market. We are optimistic about the expansion of leading enterprise networks+brand advantage. We are optimistic about the expansion of leading enterprise outlets and the expansion of content service capabilities in the medium to long term, which is expected to surpass the level of market share before the “double reduction”.

The company took the lead in implementing the transformation under the recovery of traditional business demands+stock advantage, and is optimistic about subsequent development. On the one hand, the company's traditional business (mainly including overseas exam preparation & consulting, adult business, etc.) benefited from post-pandemic liberalization and strong demand recovery due to increased competition in the job market. FY24Q3 study/adult and college student business revenue was +39%/+53% year-on-year. Relying on the advantages of the New Oriental brand, it is expected to maintain steady growth in the future. On the other hand, the company's transformation business was the first to be realized. 1) Oriental Selection (verified): FY23 subsidiary Dongfang Selection achieved net profit of 1.09 billion yuan, an increase of 891% over the previous year. As an extension of the content ecosystem, it has become the company's second growth curve; 2) Quality literacy education (ongoing verification): The quality education market is scattered. We believe that the company has advantages such as brand+content+channel+user base, which is expected to support rapid business development. The number of applicants for non-subject counseling at FY24Q3 reached 355,000 (YOY +62.8%). In addition, new businesses such as the company's intelligent learning system are also developing well; 3) New Oriental Cultural Tourism, etc.: Key layout direction in 23 years, with obvious product features+ based on the company's live streaming traffic advantage, and we look forward to future progress.

Investment advice: We forecast that the company's revenue for 24-26 will be US$43.05/53.29/6.509 billion, respectively, up 44%/24%/22% year on year; adjusted net profit to mother will be US$4.05/5.31/746 million, respectively, up 57%/31%/41% year on year. The analysis was carried out using the SOTP valuation method. The total corresponding target market value was HK$145.6 billion, and the corresponding target price was 88HKD. Covered for the first time, giving it a “Recommended” rating.

Risk warning: risk of tightening policies; demand recovery falling short of expectations; new business development falling short of expectations; increased risk of industry competition; risk of declining teaching quality and reputation, etc.