FIRST SHANGHAI: Maintains "Buy" Rating on NEW ORIENTAL-S (09901) with a target price of 57.9 Hong Kong dollars.

FIRST SHANGHAI's research report stated that considering the gradual stabilization of NEW ORIENTAL-S (09901, EDU.US) core business and significant improvement in shareholder returns, the company is given a 25x PE on FY26E net profit, adjusting the company's target price to $74.5/57.9 HKD, maintaining a buy rating. On one hand, the impact of the macro environment on the study abroad business and the high base of new business have led to a slowdown in the company's education business growth; on the other hand, the company continues to push for cost reduction and efficiency improvement, increasing the utilization rate of its branches, and it is expected that the company's Non-GAAP net profit margin will continue to improve. FIRST SHANGHAI's main points are as follows: Performance Overview As of August 31, 25, the company's FY26Q1 net revenue increased by +6.1% year-on-year to 1.52 billion USD (in USD), slightly exceeding the company's previous performance guidance (14.6 to 15.1 billion USD). Operating profit was 310 million USD, up +6% year-on-year; Non-GAAP operating profit was 336 million USD, up +11.3% year-on-year; net profit attributable to shareholders was 240 million USD, down -1.9% year-on-year.) Non-GAAP net profit attributable to shareholders was 258 million USD, down -1.6% year-on-year. The slight decline in net profit attributable to shareholders year-on-year is mainly due to the provision for dividend tax and other income fluctuations, with a Q1 Non-GAAP operating profit margin of 22.0%, up by 1.0 PCTs compared to the previous year, showing good operating profit performance. Different Performance in Education Business In terms of business segments, FY26Q1 overseas exam preparation and overseas consulting business increased by +1.0% and 2.0% year-on-year, with rapid growth in overseas youth exam training partially offsetting the decline in adult exams; college and adult exam business increased by 14.4% year-on-year; in terms of new business, overall revenue in Q1 increased by 15.3% year-on-year, with non-subject tutoring business registering 530,000 enrollments, a 9.5% year-on-year increase. Smart learning systems and equipment had 452,000 paid active users in Q4, up by 39.9% year-on-year. FY26Q2 and FY26 Outlook The company expects the net revenue for FY26Q2 (September 1, 2025 to November 30, 2026) to be between 1.132 billion USD and 1.163 billion USD, an increase of between 9% and 12% year-on-year. In addition, the company maintains its unchanged forecast for FY26 (June 1, 2025 to May 31, 2026) net revenue, expected to be between 5.145 billion USD and 5.39 billion USD, an increase of 5% to 10% year-on-year. Positive Shareholder Return Plan In July 2025, the company approved a three-year shareholder return plan, starting from the 2026 fiscal year, allocating no less than 50% of the previous fiscal year's net profit attributable to shareholders for shareholder returns. The company announced its 2026 fiscal year shareholder return plan alongside its financial report, which includes a cash dividend of 190 million USD (to be paid in two installments, expected in December 25 and June 26) and a buyback of 300 million USD (within the next 12 months), with a combined return rate of around 5%. The company plans to execute a total of 490 million USD in dividend and buyback.