New Oriental Sets Out New Business Initiatives

We keep our fair value estimate for New Oriental Education, or EDU, at USD 21.50. EDU’s losses of USD 122 million in the third quarter of fiscal 2022 were driven by investments in new business initiatives. This is well expected. On the positive side, EDU’s cash and cash equivalents, term deposits and short-term investments totaled USD 4.4 billion, which provides ample room for exploring new business opportunities. After deducting the accrued expenses, accounts payable, tax payable, and senior notes, we estimate a net cash position of USD 3.6 billion. The current market cap is only about USD 1.7 billion, or USD 1.9 billion lower than its current net cash position. Operating cash outflow in the quarter was about USD 235 million. At the current run rate, it would take another eight quarters of cash outflow to close the gap between market cap and net cash position. This looks overly bearish. That said, the share price could remain volatile due to limited visibility.