Key Statistics
1) Price, Trading Volume and Earnings
|
Trade Time |
27 Jun 2008 |
|
Last Trade Price |
$58.95 |
|
Market Cap |
$2.22 B |
|
Share Outstanding |
35.35 M |
|
Average Daily Volume |
557,931 |
|
52-wk High |
$92.15 |
|
52-wk Low |
$42.89 |
|
Beta |
1.79 |
|
EPS |
$1.15 |
|
P/E |
51.3 |
Data provided by Yahoo Finance
2) Major Holders
|
Breakdown |
|
% of Shares Held by All Insider and 5% Owners |
1% |
|
% of Shares Held by Institutional & Mutual Fund Owners |
17% |
|
% of Float Held by Institutional & Mutual Fund Owners |
17% |
|
Number of Institutions Holding Shares |
130 |
Data provided by Yahoo Finance
3) Analyst Opinion
|
Recommendation Summary |
|
Mean Recommendation (this week) |
1.5 |
|
Mean Recommendation (last week) |
1.5 |
|
Change |
0.0 |
|
Notes: (Strong Buy) 1.0 – 5.0 (Sell) |
Data provided by Yahoo Finance
|
Recommendation Trends |
|
|
Current Month |
Last Month |
Two Months Ago |
Three Months Ago |
|
Strong Buy |
5 |
5 |
5 |
5 |
|
Buy |
5 |
5 |
5 |
5 |
|
Hold |
0 |
0 |
1 |
1 |
|
Underperform |
0 |
0 |
0 |
0 |
|
Sell |
0 |
0 |
0 |
0 |
Data provided by Thomson/First Call
4) Analyst Predication
|
Price Target Summary |
|
Mean Target |
$84.94 |
|
Median Target |
$84.00 |
|
High Target |
$100.00 |
|
Low Target |
$71.00 |
|
No. of Brokers |
8 |
Data provided by Thomson/First Call
Business Overview
New Oriental Education & Technology Group (EDU) is the largest private educational services provider in China. Its revenue and earning ability based on the number of program offerings, total student enrollments, and geographic presence in China. Its primary service and products include:
- English and other foreign language training;
- Test preparation courses;
- Primary and secondary school education;
- Educational content and software;
- Online education programs (koolearn.com);
- Other services and products (e.g. consulting services for overseas education admission).
1) Rising Demand for English Training
The rapid speed of globalization means English is becoming significantly important in people’s daily life. New Oriental’s major product such as English-language course and test-preparation courses right hit the target, since Chinese workforce puts an extremely high priority on education, and the fierce competition meant a rising demand on English education. Public schooling cannot keep up with the growing demand and people are turning to private educators to fill the void.
Furthermore, regardless the possibility of China’s slowdown, educational services could be immune to the domestic economy. The private English educational service industry is considered as a fast-growing and highly defensive sector. New Oriental is a big beneficiary of a huge population that is eager to learn English and to learn new technical skills.
2) Dominant Position in the Private Education Industry
Since New Oriental’s founding in 1993, it has become the most recognized brand in Chinese private education. Up to year 2008, it had over 4.5 million student enrollments, including approximately 1.2 million enrollments in calendar year 2007. The company has a network of 38 schools, 181 learning centers, 20 New Oriental bookstores and over 5,000 third-party bookstores and approximately 3,000 teachers in 35 cities, as well as an online network with approximately 3.5 million registered users (Source: New Oriental Company Website, 2008). The table below provides a comparison of EDU’s key financial indicators verse the other industry leaders. Obviously, EDU outperformed its peers and the industry average in terms of YoY Quarterly Revenue Growth, Operating Profit Margin, and EPS.
|
Direct Competitor Comparison |
|
|
EDU |
CEDU |
REVU |
Industry |
|
Market Cap |
2.22B |
92.52M |
214.18M |
324.30M |
|
Employees: |
3,176 |
N/A |
511 |
1.30K |
|
Qtrly Rev Growth (YoY): |
34.10% |
N/A |
3.00% |
8.60% |
|
Revenue (ttm): |
199.72M |
40.56M |
147.81M |
238.66M |
|
Gross Margin (ttm): |
61.48% |
64.71% |
59.06% |
55.19% |
|
EBITDA (ttm): |
54.21M |
11.01M |
-1.39M |
42.22M |
|
Oper Margins (ttm): |
22.52% |
20.70% |
-6.34% |
8.12% |
|
Net Income (ttm): |
48.99M |
662.21K |
-32.87M |
10.92M |
|
EPS (ttm): |
1.253 |
0.038 |
-1.309 |
0.40 |
|
P/E (ttm): |
47.05 |
125.00 |
N/A |
36.64 |
|
PEG (5 yr expected): |
1.41 |
0.8 |
N/A |
1.28 |
|
P/S (ttm): |
11.36 |
2.31 |
1.58 |
2.76 |
|
CEDU = ChinaEdu Corporation (NasdaqGM: CEDU)
REVU = Princeton Review Inc (NasdaqGM: REVU)
Industry = Education & Training Services |
Data provided by Yahoo Finance
3) Company’s Strong Financial Performance
Beat Management’s Guidance
One of the biggest issues driving price hike is the company’s ability to beat its own guidance (which was estimated during the past quarter). Halfway through the fiscal third quarter of 2008, EDU’s management was guiding for 22 to 28% revenue growth, and eventually the number came out at 46.9% growth. For the current quarter, management is now guiding for 29-34% growth and is lauding the fact that this guidance is even higher than the previous quarter's guidance. Hence, I expect the company will continuously beat the expectation considering the fact that last quarter the company beat by such a wide margin.
Net Revenue
Total Net Revenues increased by 46.9% year-over-year to US$48.1 million from US$32.8 million in the same period of the prior fiscal year. The growth was mainly driven by the raising number of student enrolled in language training and test preparation courses. According to company statistics, Total number of students increased by 34.8% YoY from 199,100 in the third quarter of 2007 to 268,400 in the same period of 2008.
Income from Operation
Income from Operations increased by 46.1% year-over-year to US$10.2 million from US$7.0 million in the same period of the prior fiscal year. On the other hand, Total Operating Costs also increased 47.1% YoY to 37.9 million, mainly due to the increase in Cost of Revenue and Marketing Expenses. As the number of students increased, more expense was allocated to schools and learning centers operation (e.g. rent, electricity, salary). Similarly, the marketing expense was increased due to a rapid expanding network of learning centers. In particular, the company spent over US$1.3 million in promoting the new U-Can Gaokao Program. However, we expect more substantial future benefit to flow into the company to offset the current marketing expenses.
Net Income & Basic and Diluted Earnings per Share
Net Income increased by 38.1% YoY to US$11.6 million from US$8.4 million in the same period of the prior fiscal year. Basic and Diluted Earnings per ADS were US$0.31 and US$0.29, respectively in 2008, while the Basic and Diluted Earnings per ADS were US$0.23 and US$0.22 in the same period in 2007 fiscal year.
Total Number of Enrollments & Total Number of Schools and Learning Centers
Total student enrollments in language training and test preparation courses increased by 34.8% YoY to approximately 268,400 from approximately 199,100 in the same period of the prior fiscal year. The total number of schools and learning centers increased from 128 as of February 28, 2007 to 181 as of February 29, 2008.
Share Repurchase Scheme Indicates Strong Cash flow position
New Oriental Education & Tech. Group Inc’s Feb (2008) announcement of share repurchase program, this indicates a strong cashflow position of the company. The board has authorized the Company to repurchase up to one million of its own ADSs during the period from February 25, 2008, to December 31, 2008. The repurchases will be made from time to time on the open market at prevailing market prices, in negotiated transactions off the market (Source: PR Newswire Association LLC, 2008 ).
Source: New Oriental’s Third Fiscal Quarter Financial Statement Ended Feb 29, 2008.
4) Strategic Decisions & Improvement
“New Oriental U-Can” Program
During the third fiscal quarter of 2008, the company has decided to enter the preparatory education industry by preparing students for the standardized “gaokao” test that is required for college admission. The current education system requires all students who wish to enter college to take and pass this standardized test. Unfortunately, despite a widespread desire to enter such programs, there is only a 60% pass rate. EDU sees this as a ripe opportunity to offer study classes to better prepare students to pass the test.
According to the statistics, there were 9.5 million students took the gaokao in 2007, while over 70% were first-time test takers, the other 30% were re-takers. By acquiring 60% equity stake in MingShitang (a Beijing-based private school that specializes in tutoring gaokao re-takers), New Oriental aims to capture both first-time takers and re-takers, as well as to extend its brand to