EB SECURITIES: Maintains a "buy" rating for NEW ORIENTAL-S (09901) as operating profit continues to improve in FY26Q1.

EB SECURITIES released a research report stating that considering the intensifying industry competition and the increase in business base, the net profit attributable to shareholders for the fiscal years 2026-2028 of NEW ORIENTAL-S (09901) was revised down to 4.42/5.14/5.82 billion US dollars (decreased by 8% each), corresponding to EPS of 0.28/0.33/0.37 US dollars for the fiscal years 2026-2028. The current stock price corresponds to PE ratios of 22x/19x/16x respectively. The company is a leader in the education and training industry, with strong industry demand. The bank maintains a "hold" rating. EB SECURITIES's main points are as follows: Event: In Q1 FY26, New Oriental achieved a net revenue of 1.523 billion US dollars, an increase of 6.1% year-on-year; achieved a net profit attributable to shareholders of 24.07 million US dollars, a decrease of 1.9% year-on-year; achieved Non-GAAP net profit attributable to shareholders of 258 million US dollars, a decrease of 1.6% year-on-year. The company's core business showed steady growth in Q1 FY26, with revenue guidance accelerating in Q2. In Q1 FY26, the company's net revenue increased by 6.1% year-on-year to 1.523 billion US dollars, exceeding the upper limit of the previous expected range (guidance of 2%-5% year-on-year growth). By segment: 1) Overseas business: Revenue from overseas exam preparatory business increased by 1.0% year-on-year, revenue from overseas consulting business increased by 2.0% year-on-year, with a slowing growth rate. Revenue growth in the younger age group segment of the overseas exam preparatory business was faster; and in the overseas consulting business, business performance was particularly strong in non-American and non-British directions, especially in Asian countries. 2) Adult and college domestic exam preparation business: Revenue increased by 14.4% year-on-year, maintaining strong growth. 3) New education business: Revenue in Q1 FY26 increased by 15.3% year-on-year, with growth slowing mainly due to intensified competition from "low-price/free classes" in the summer. With a large number of students returning in the autumn, revenue growth in this business is expected to accelerate in Q2 FY26. The non-academic tutoring business in Q1 FY26 was conducted in approximately 60 cities, with roughly 530,000 registered students; intelligent learning systems and devices were used in approximately 60 cities, with about 452,000 active paying users. The company expects the overall net revenue in Q2 FY26 to be between 1.132 billion US dollars and 1.163 billion US dollars, an increase of 9%-12% year-on-year, with growth accelerating compared to Q1. The company maintains its full-year FY26 net revenue guidance at 5.145 billion US dollars to 5.390 billion US dollars, an increase of 5%-10% year-on-year. In addition, the company announced the initiation of a three-year shareholder return plan, intending to use no less than 50% of the previous year's net profit attributable to shareholders to return to shareholders, and has approved the distribution of 190 million US dollars in cash dividends and the initiation of a 300 million US dollar share repurchase plan, demonstrating management's confidence in future development. Operating profit continued to improve in Q1 FY26, with the results of operating efficiency optimization gradually appearing. In Q1 FY26, the company's Non-GAAP operating profit was 336 million US dollars, an increase of 11.3% year-on-year. The Non-GAAP operating profit margin was 22.0%, an increase of 1.0 percentage point year-on-year. The improvement in profit margin was mainly due to the company's continuous efforts in cost optimization and operational efficiency improvement. Despite facing challenges in slowing overseas business, the company effectively improved overall operational efficiency through cautious capacity expansion strategies, the promotion of OMO teaching systems, and increased application of AI technology in education ecosystems and internal operations. Looking ahead, with accelerating revenue growth in Q2 FY26 and the company's continued efforts to reduce costs and improve efficiency, it is expected that operating profit will continue to improve. Risk warning: Risks of tightening policies; New business expansion falling short of expectations; Risks of intensified industry competition.