The drag on e-commerce business is limited. Dongfang, a subsidiary of New Oriental Holdings, changed personnel, and the lead anchor Dong Yuhui left his job. We expect Eastern Selections' revenue to fall to $25,26 billion and $5.56 billion and $6.13 billion (approximately $0.77 billion and $851 million) for the fiscal year. Profit for the same period will fall to 0.129 billion yuan and 164 million yuan (approximately 0.018 billion US dollars and 0.23 billion US dollars). Since New Oriental holds 57.04% of Oriental Select. Oriental Select's revenue contribution to New Oriental's fiscal year 25 and 26 will decrease by $0.25 billion and $320 million. Non-GAAP net profit contributions for the same period will decrease by $0.031 billion and $33 billion. Oriental Selection contributed approximately US$0.01 billion and US$0.13 billion to New Oriental's non-GAAP net profit in fiscal year 25 and 26, accounting for about 2.1% and 1.9% of New Oriental's total profit for the same period, with limited drag on e-commerce business.

The education business is growing strongly. We expect the company's revenue from the education business to increase by 34.6% year-on-year to 4.67 billion US dollars in fiscal year 25 and 26, respectively, and 30% to 6.06 billion US dollars, driven by the rapid growth of the study abroad examination and consulting business. We expect the number of non-subject literacy training trainers to increase by 55% to 3.82 million year-on-year and 50% to 5.73 million during the same period. Even with the rapid increase in the number of literacy trainers, there is still room to double the number of trainers in FY26 compared to the “double reduction” of the previous average of 12 million training sessions per year. We expect the new business revenue from the literacy education and learning machine business to reach $1.07 billion and $1.66 billion, respectively, during the same period, up 60% and 55% year-on-year, respectively. We expect that in fiscal year 25 and 26, revenue from studying abroad will reach $129 billion and US$1.53 billion, respectively, an increase of 23.6% and 18.5% over the previous year. We judge that since the proportion of people studying abroad in our country is still very low, the study abroad market will maintain medium to high growth even after a rapid recovery. China's study abroad penetration rate is only 0.4% (annual students studying abroad divided by high school and undergraduate students). Compared with 1.3% in Vietnam and 1.9% in Korea, there is still a lot of room for improvement.

The normalization of policy supervision guarantees the acceleration of the expansion of teaching outlets. Due to the high number of trainers, we expect the company to speed up the establishment of teaching sites. The number of teaching outlets is expected to reach 25,26 to 1,246 and 1,541 respectively, an increase of 24% and 23.7%, respectively, over the previous year.

As a leading indicator of the number of trainees, we believe that the acceleration in the expansion of teaching sites indicates that the boom in demand is still on an upward channel. The accelerated expansion of teaching outlets will drive an accelerated increase in the number of trainers and an acceleration in revenue growth. Furthermore, various provinces and cities have successively proposed speeding up the approval of non-subject training outlets, particularly as represented by the Beijing Municipal Education Commission's special action. We expect education and training supervision to gradually become normalized. We judge that at this stage, the approval of new teaching sites is still given priority to existing education and training institutions, so New Oriental with a national layout will have a more first-mover advantage.

Maintain a buy rating. Due to fluctuations in e-commerce business, we lowered the company's revenue forecast for the 25/26 fiscal year to 5.44 billion/6.92 billion US dollars (the original profit forecast was 5.69 billion/7.23 billion US dollars). We lowered the company's adjusted net profit for fiscal year 25/26 to 0.493 billion/0.672 billion US dollars (original profit forecast was 0.524 billion/0.706 billion US dollars). We believe that as the education business continues to grow rapidly and production capacity expansion accelerates, the market will focus on the company's growth, so the profit margin pressure brought about by preemptive costs and expenses under capacity expansion will no longer hinder the company's valuation increase. We slightly lowered the target price of $109.45 under the SOTP valuation (HK$85.6; each ADR is equal to 10 common shares; Hong Kong stocks trade common shares), corresponding to a 55.6% increase in the current price (48.9% increase for Hong Kong stocks), maintaining the purchase rating.

Risk warning: Non-subject training supervision policies have been strengthened; overseas geopolitical factors have blocked overseas study visas, and business recovery has slowed down.