EB SECURITIES: Maintains a "buy" rating on NEW ORIENTAL-S (09901), optimistic about the prospects of the education and training industry and the company's leading advantages.

EB SECURITIES released a research report stating that it maintains a "buy" rating for NEW ORIENTAL-S(09901), considering the impact of the macroeconomic environment on the company's high-end one-on-one overseas business. The company is under pressure and it is difficult to determine the turning point. As a precaution, the company's net profit forecast for the fiscal years 2025-2027 has been revised downwards to 413/555/712 million US dollars (a decrease of 13%/12%/11% respectively), with corresponding EPS for the fiscal years 2025-2027 of 0.25/0.34/0.44 US dollars. Currently, the company's capacity expansion and operational situation are stable, and the profit margin of the core education business continues to improve. The bank is optimistic about the industry outlook and the company's leading advantages in the education and training industry. The main points of EB SECURITIES are as follows: Events: In FY25Q2, New Oriental achieved revenue of 1.039 billion US dollars, a year-on-year increase of 19.4%; achieving a net profit of 0.32 billion US dollars, a year-on-year increase of 6.2%; achieving Non-GAAP net profit of 0.36 billion US dollars, a year-on-year decrease of 29.1%. The core education business grew steadily, exceeding previous guidance. In FY25Q2, core education business revenue (excluding selection) increased by 31.3% year-on-year, higher than the upper limit of the previous guidance (year-on-year growth of 25%-28%). Looking at the business segments: 1) In FY25Q2, revenue from overseas exam preparation and overseas consulting business increased by 21.1% and 31.0% year-on-year, respectively. The growth rate of revenue from overseas consulting business is higher than the guidance mainly due to the increase in the proportion of 2+2 projects and background improvement projects, leading to early revenue recognition. 2) Revenue from adult and college students' domestic exam preparation business increased by 34.9% year-on-year, despite a consecutive 2-year decrease in the number of postgraduate entrance examination registrations, the competitive landscape was optimized due to the exit of many institutions from the market, further consolidating New Oriental's advantages. 3) Revenue from new education business increased by 42.6% year-on-year. The revenue of the new education business in FY25Q2 continued to grow at a high double-digit rate, with non-subject tutoring business being conducted in nearly 60 cities, with a year-on-year increase of 26.5% to 994,000 registrations. The intelligent learning system and equipment were used in approximately 60 cities in FY25Q2, with the number of active paying users increasing by 44.2% year-on-year to 261,000. The number of outlets in FY25Q2 expanded by mid-single digits compared to the previous quarter, and the full-year guidance for year-on-year expansion of 20%-25% is on track. In FY25, the company is more focused on improving the efficiency and profit margin of outlets. The company expects to achieve revenue (excluding selection) of 1.0073-1.0325 billion US dollars in FY25Q3, with a year-on-year growth of 18%-21%, and the revenue growth rate expected in RMB is 20%-23%. The expected slowdown in revenue growth is mainly due to 1) the base effect; 2) uncertainty in the macroeconomy, which may affect the high-end one-on-one overseas business; 3) fluctuations in exchange rates. As a result, the full-year revenue growth rate guidance (in RMB) is revised downwards to 25%, compared to the previous guidance of 30%. The profit margin of the core education business in FY25Q2 improved year-on-year, but the profit margin is expected to be under pressure in H2 due to the drag from high-end one-on-one overseas and cultural tourism businesses. In FY2025Q2, the company's gross profit margin increased by 0.6 percentage points year-on-year to 52.0%, while the Non-GAAP operating profit margin decreased by 3.2 percentage points to 2.7% year-on-year, primarily due to the drag from EAST BUY and new tourism businesses. The Non-GAAP operating profit margin of the core education main business was 3.2%, an increase of 0.12 percentage points year-on-year. Looking ahead to FY25Q3, due to the uncertainty in the macroeconomic environment, the high-end one-on-one overseas business is expected to continue to be under pressure. Added to the drag from the cultural tourism business, the company expects the Non-GAAP operating profit margin of the core education main business to decrease year-on-year in FY25Q3. With the easing of subsequent base pressure and improvement in the macroeconomic environment, it is expected that the profit margin in FY26 will improve compared to FY25.