FY24Q4 revenue also increased by 32%, and non-GAAP net profit decreased by 41% due to short-term factors. The company released a new financial report. FY24Q4 (2024/3/1-2024/5/31) revenue of 1.14 billion dollars increased by 32.1%, of which overseas exam preparation increased 17.7%, overseas consulting increased 17.3%, adult and college student exam preparation services also increased 16.4%; the new education business maintained strong growth, with a similar increase of 50.3%. Among them, the number of non-GAAP education and training registrants was 0.88 million. The smart learning system had 0.188 million active paying users during the quarter.
FY24Q4's non-GAAP operating profit of 0.04 billion dollars decreased by 53.8%; non-GAAP OPM decreased by 3.2% by 5.9pct; net profit to mother of 0.03 billion dollars decreased by 6.9%, non-GAAP net profit of 0.04 billion dollars decreased by 40.5%, and non-GAAP net profit of 3.2% to mother decreased by 4 pcts.
FY24's annual revenue of 4.31 billion dollars increased by 43.9%; non-GAAP OPM increased 11% by 1.6 pct; net profit to mother of 0.31 billion US dollars increased 74.6%, non-GAAP net profit of 0.38 billion US dollars increased by 47.2%, and non-GAAP net interest rate of 8.8% to mother increased 0.2 pcts.
We believe that the year-on-year decline in FY24Q4 profits is mainly due to: 1) the company's investment in accelerating the expansion of educational space and the newly integrated cultural tourism business; 2) improving remuneration and rewards for management and employees; and 3) the short-term impact of Oriental Selection Q4. Profit pressure may quickly ease as subsequent short-term factors disappear and network utilization rates and operating efficiency improve.
The company indicates that FY25Q1 revenue (excluding Dongfang's proprietary products live e-commerce business) was 1.25-1.28 billion US dollars, an increase of 31-34% year over year; profit margin may improve by 2 pct year over year. FY25's revenue growth guidelines for each business line are: 20-25% for overseas exam preparation, about 15% growth for overseas consulting business, 45-50% growth rate for new education business, and 25-30% growth rate for high school business.
The number of FY24 outlets also increased by 37%, and the expansion rate for the new fiscal year is expected to be 20-25%. By the end of May, the total number of schools and learning centers in the company was 1,025, including 81 schools; in Q4, there was a net increase of 114, and the number at the end of Q4 increased 12.5% month-on-month, 37% year-on-year, and the expansion rate was fast; the company plans to expand 20-25% of FY25 outlets.
We believe that the rapid expansion of outlets reflects the current strong demand and high boom in the education and training industry. In the future, along with the enrollment of new outlets, climbing utilization rates, and the release of scale effects, the company's performance may usher in rapid growth.
Oriental Selection is a short-term influencing factor. The cultural tourism business may gradually contribute to the performance of New Oriental FY24H2. One of the main factors affecting the profit of New Oriental FY24H2 is the impact of Dongfang Selection's performance and divestment with Hui's peers. The latter may continue to incur one-time expenses in FY25Q1, but subsequent related performance is expected to stabilize.
The cultural tourism business is temporarily at a loss. FY24's revenue is about 0.38 billion yuan, and FY25's estimated revenue may reach 1.2 billion yuan; FY26 may achieve break-even status, gradually contributing impressive revenue performance to New Oriental.
Adjust profit forecasts to maintain “buy” ratings
We continue to be optimistic about the growth prospects of New Oriental as a leading education and training enterprise. The short-term investment and one-time impact of Oriental selection will not hinder the company's long-term growth logic. Revenue and network expansion guidelines are still sending positive signals. The future will be accompanied by increased utilization rates and profits may be rapidly released.
Considering the one-time impact of the divestment with Huihui and the subsequent decline in utilization rates, we adjusted the profit forecast. We estimated that FY25-27's revenue would be 5.2, 6.4, and 7.5 billion US dollars (the previous FY25-26 values were 5.7 and 7.3 billion US dollars, respectively), and the adjusted net profit to mother would be 0.56, 0.77, and 1.06 billion US dollars, respectively (previous FY25-26 values were 0.61 and 0.88 billion US dollars, respectively), EPS was 0.3, 0.4 and 0.6 US dollars/share (previous FY25-26 values were 0.35 and 0.52 US dollars/share, respectively), and the corresponding PE was 18, 13, and 9x, respectively.
Risk warning: Risks such as business development falling short of expectations; fierce market competition; channel expansion falling short of expectations.