New Oriental released its fiscal year 2021 three-quarter report on April 20. The third quarter of fiscal year 2021 achieved revenue of $1,190 million, up 28.95% year on year, exceeding previous performance forecasts ($1,099 million - $1,145 million); GAAP net profit of $151 million, up 9.88% year on year; non-GAAP net profit of $163 million, up 9.92% year on year; diluted earnings per share of $0.09, and non-GAAP adjusted earnings of $0.10 per share.
New Oriental also expects 4Q revenue of FY2021 to be around US$1,102 billion to US$1,142 million, an increase of 38%-43% over the previous year.
1. 3Q21FY net revenue increased 28.95% year over year to US$1,190 million (1) Revenue: 3Q21FY company revenue increased 28.95% year over year to US$1,190 million, growth rate increased 13.1 pct year over year and 15.9 pct month on month.
(2) Operating profit margin: 3Q21FY non-GAAP operating profit margin was 9.7%, a decrease of 4.9 pct over the previous year and an increase of 11.2 pct over the previous month.
2. The total operating expenses of 3Q21FY increased 35.11% year-on-year to US$1,089 million, and the total operating expenses ratio increased by 4.17pct to 91.47%. ① Main business costs: 3Q21FY's main business cost was 540 million US dollars, an increase of 35.35% over the previous year; it accounted for 45.32% of operating income, an increase of 2.14 pct over the previous year and a decrease of 5.79 pct over the previous month. The main reason was the increase in remuneration due to the increase in teachers' teaching hours, and the increase in rent costs due to the increase in the number of schools and learning centers. ② Marketing expenses: A year-on-year increase of 32.06% to US$156 million; the marketing expense ratio was 13.11%, an increase of 0.31pct over the previous year, and a decrease of 1.94 pct over the previous month, mainly due to an increase in the number of marketers implementing OMO (online integration and offline) strategies. ③ Administration and management expenses: A year-on-year increase of 36.08% to US$393 million; the administrative and management expenses ratio was 33.04%, an increase of 1.73 pct over the previous year and a decrease of 4.42 pct from the previous month. Mainly due to the increase in the number of executives, as well as the R&D costs and human resources related to the integration of the company's online and offline education ecosystems
3. 1-3Q21FY GAAP operating income (GAAP operating income) was 220 million US dollars, GAAP operating profit for the same period last year was 389 million US dollars; 3Q21FYGAAP operating profit was 101 million US dollars, and GAAP operating profit for the same period last year was 117 million US dollars. Expenses have increased.
1-3Q21FYGAAP's operating profit was $220 million, GAAP operating profit for the same period last year was $388 million, non-GAAP operating profit fell 37.40% year over year to $268 million, and the non-GAAP operating margin was 8.76%. GAAP net income to the mother was $380 million, and the GAAP net loss to the mother for the same period last year was $400 million; non-GAAP net profit to the mother was $417 million, down 4.30% year over year.
3Q21FY GAAP operating profit was $101 million, GAAP operating profit for the same period last year was $117 million, non-GAAP operating profit was $116 million, non-GAAP operating profit for the same period last year was $135 million, and the non-GAAP operating margin was 9.73%. GAAP net income to the mother was $151 million, compared to $1.38 for the same period last year; non-GAAP net income to the mother was $163 million, up 9.90% year over year.
4. The total number of 3Q21FY students enrolled increased 43% year over year, and K-12 after-school tutoring business grew strongly.
The total number of 3Q21FY students enrolled increased 43.0% year over year to 2.297 million, and the total number of 1-3Q21FY students enrolled increased 17.9% year over year to 9.441 million. The company's revenue growth was mainly due to K-12 general subject after-school tutoring business. Among them, 3Q21FY Youneng Middle and High School's general subject after-school tutoring business revenue increased by about 35% year on year, and bubble children's education revenue increased by about 40% year on year. In the end, the number of students enrolled in K-12 after-school tutoring classes increased 57% year over year, and revenue increased about 37% year over year.
5. The number of schools and outlets increased 14.8% year over year to 1,625, classroom space increased 17% year over year, and OMO continued to expand.
① Schools and learning centers: The total number of 3Q21FY schools and learning centers reached 1,625, up 14.8% year on year and 7% month on month. The number of schools at the end of the reporting period was 118, and the total classroom area increased 17% year over year and 7% month on month.
② OMO expansion: In the winter semester, OMO online courses have been deployed in most of the cities where the company operates and 25 new surrounding satellite cities.
With K12 extracurricular tutoring and training as the core, the company's diversified strategy has achieved results through brands accumulated through word of mouth. Apart from the high growth of K-12 business to help the company escape the shadow of the epidemic, businesses such as Yuneng Middle School Education and Bubble Children's Education have all performed well. The OMO business, which the company focuses on, is also gradually expanding regionally.
Under the influence of the epidemic, the penetration of online education has accelerated, and offline courses are under pressure. The company quickly switched offline courses to the online OMO system, and the contribution of online education to revenue has gradually increased. We think the company's pace on the online circuit is steady and the prospects are clear.
The OMO ecosystem drives business upgrading and forms a positive business-feedback-growth cycle: We believe that the company's OMO model is a strategic upgrade for offline courses. The OMO system provides students with more comprehensive interaction, testing and guidance. The combination of online and offline can achieve a closed loop of learning, complementing the original single terrestrial course in multiple ways. At the same time, customized teaching content can be generated through data collection and analysis. Under this healthy development trend, the continuous accumulation of data is expected to accelerate the development and marketing of innovative teaching products, and feed back the data obtained from the new products back to the system for further analysis, forming a positive cycle of data iteration. The company is expected to take advantage of the advantages of Internet technology and combine offline products and scenarios to greatly improve efficiency and quality, thereby generating more revenue, profit and word of mouth.
Update profit forecasts and valuations. Revenue for the 2021-23 fiscal year is expected to increase by 18%, 41%, and 26%, respectively, and net profit returned to the mother by 56%, 63%, and 36%, respectively. Corresponding to the 2021-23 EPS was 0.38, 0.61, and 0.83 US dollars/share, respectively.
Based on 55-60 times PE in FY2021, combined with DCF valuation, the company was given a reasonable value range of HK$160.1-174.7, maintaining the “superior market” rating.
Risk warning: risk of market competition, risk of loss of personnel, risk of stricter supervision of the training industry.