Key points of investment
Incident: New Oriental released its FY2024Q4 financial report (corresponding to March '24). Single-quarter revenue increased 32.1% year-on-year to $1.14 billion, exceeding performance guidelines for four consecutive quarters. FY24Q4 gross margin and non-GAAP operating profit margin declined by 2 pct and 6 pct, respectively, due to factors such as capacity expansion, newly integrated travel business, and additional employee incentives. The company expects the revenue growth rate of FY25Q1 to reach 31% to 34% year on year (not considering the Oriental Selection section), the pressure on the profit margin of the education business will be reduced, and the operating profit margin will increase by 2 pct year over year (without considering the Oriental Selection section).
By business, the education business has grown across the board, and the research and cultural tourism business is progressing smoothly. Revenue from the FY24Q4 overseas exam preparation business increased 17.7% year on year, revenue from study abroad consulting business increased 17.3% year over year, domestic exam preparation revenue for adults and college students increased 16.4% year on year, and revenue from new education business increased 50.3% year on year. The research camp business has covered more than 65 cities across the country this quarter; the cultural tourism business covers all age groups, including middle-aged and elderly people, young people, and parents and children. FY2024 revenue is about 0.38 billion yuan. The company expects FY2025 revenue to reach 1.2 billion yuan.
The expansion of outlets has accelerated, and the network utilization rate is still increasing: the total number of New Oriental schools and learning centers increased to 1,025 in this quarter, and 277 new outlets were opened during FY2024. The company expects FY2025 to increase the number of outlets by 20% to 25%. The number of applicants for the FY24Q4 non-disciplinary training business was approximately 0.875 million, yoy +39%; the number of active paying users for the intelligent learning system and equipment business reached 0.188 million, yoy +90%. Looking at individual outlets, the average number of new education business users per FY2024 network was 3,561, yoy +29%; the average number of new education business users per FY24Q4 network was 1,037, yoy +7%, indicating that the utilization rate of a single network is still increasing.
It is expected to be released in July and will have little impact on the New Oriental Group: As a subsidiary selected by Dongfang, Dong Yuhui is responsible for the operation and announced independence on July 25, 2024.
According to our estimates, FY2024 and Hui's counterpart contributed about 2% to New Oriental Group's revenue and 3% to net profit to mother, which had little impact.
Profit forecast and investment rating: New Oriental's core valuation and market capitalization potential mainly depends on its education business sector. With the steady development of the education and training industry, the company is speeding up the expansion of teaching and research and the opening of new outlets, which has had a certain impact on profit margins in the short term. We cut the company's FY2025-2026 non-GAAP net profit from $0.52/0.63 billion to $0.5/0.61 billion, and expect FY2027 to be $0.72 billion. The current stock price's PE corresponding to FY2025-2027 non-GAAP net profit is 20/16/14 times (converted according to the 2024/8/3 US dollar exchange rate of 7.8060 to HKD), maintaining a “buy” rating.
Risk warning: Talent loss and brand reputation risk, competition in the education industry exacerbates risks, and new business development falls short of expectations.