Company Reports

We raise our fair value estimate for TAL Education to USD 9.70 from USD 7.70 following its fiscal 2024 (ending February 2024) results that beat our expectation as the content solutions segment revenue tripled in the February quarter. Overall, TAL remained loss-making in fiscal 2024, but its net loss narrowed to USD 4 million, and we expect the company to be profitable going forward. We increase our revenue assumption by 14%-29% for fiscal 2025 through 2028 to reflect the strong momentum, but we are less optimistic than the market. We think TAL’s current valuation has priced in a 25% revenue CAGR over the next five years with a 15% adjusted operating margin by fiscal 2029, much higher than our forecast of a 19% revenue CAGR and a 10% adjusted operating margin. For fiscal 2025, we project 33% revenue growth and 3.5% adjusted operating margin.

TAL Education, or TAL, repositioned itself as a smart learning solutions provider after regulatory changes in 2021 decimated the K-9 academic afterschool tutoring industry. It currently focuses on enrichment learning and content solutions. Enrichment learning offers nonacademic programs to students aged between two and 18 years. Content solutions offer learning content in both paper and digital formats to students.

TAL Education's, or TAL’s, fiscal 2024 third-quarter (ending November 2023) result beat our expectation. Revenue in the quarter increased by 61% year on year and was 16% higher than our forecast. We believe this was mainly driven by the exponential shipment growth of its learning tablet. We increase our revenue growth assumption to 40% from 30% for 2024 to reflect the strong momentum. We also raise our gross margin assumption by 100-110 basis points through fiscal 2028 for positive operating leverage. Accordingly, we revise our net loss estimate to USD 52 million from USD 73 million in fiscal 2024, and we increase our net income estimate by 20%-39% from 2025 to 2028. We increase our fair value estimate by 10% to USD 7.70.

TAL Education, or TAL, repositioned itself as a smart learning solutions provider after regulatory changes in 2021 decimated the K-9 academic afterschool tutoring industry. It currently focuses on enrichment learning and content solutions. Enrichment learning offers nonacademic programs to students aged between two and 18 years. Content solutions offer learning content in both paper and digital formats to students.

TAL Education, or TAL, repositioned itself as a smart learning solutions provider after regulatory changes in 2021 decimated the K-9 academic afterschool tutoring industry. It has since realigned its business focus toward enrichment learning, learning technology solutions, and content solutions. Enrichment learning offers nonacademic programs to students aged between two and 18 years. Technology solutions are business-oriented and provide enterprise-grade technology products and services to learning institutions. Content solutions offer learning content in both paper and digital formats to students.

TAL Education's, or TAL's, fiscal 2024 second-quarter (ending August 2023) revenue was in line, but margin recovery was stronger than expected. Gross margin in the quarter was only 129 basis points lower year on year, a big improvement relative to an 11.1 percentage points contraction year on year in the first quarter. We attribute this to positive operating leverage as the new businesses scale up. We think the margin improvement should be sustainable as growth continues, and hence we raise our gross margin assumptions by 240 to 300 basis points through 2028. Accordingly, we revise our net loss estimate to USD 73 million from USD 113 million in fiscal 2024, and we expect TAL to break even in 2025, one year ahead of our prior forecast. We also lower our cost of capital assumption to 13% from 15.5% to reflect lower exposure to regulatory risk as its business diversifies away from academic tutoring. As a result, we increase our fair value estimate to USD 7 from USD 5.50.

TAL Education's, or TAL's, fiscal 2024 first quarter (ending May 2023) revenue beat management guidance but adjusted net income missed Refinitiv consensus expectation. This was mainly due to the exponential growth of the low-margin content solutions business. As such, we increase our fiscal 2024 revenue forecast to USD 1.31 billion from 1.25 billion but widen our net loss estimate to USD 113 million from USD 71 million. We still expect TAL to break even in fiscal 2026. Our fair value estimate remains USD 5.50. Shares closed 17% above our fair value estimate on July 27, and we suggest investors wait for better entry points.

TAL Education’s, or TAL’s, fiscal fourth-quarter (ending February 2023) revenue beat our estimate, but core profit missed expectation. More importantly, we are disappointed with the growth guidance for its learning services segment. While strong growth outlook for its content solutions segment should offset the shortfall in learning services, overall margin will be under pressure. We widen our fiscal 2024 net loss estimate to USD 71 million from USD 10 million. We now expect TAL to break even in fiscal 2026 instead of 2025. We cut our fair value estimate to USD 5.50 from USD 6.

TAL Education, or TAL, repositioned itself as a smart learning solutions provider after regulatory changes in 2021 decimated the K-9 academic afterschool tutoring industry. It has since realigned its business focus toward enrichment learning, learning technology solutions, and content solutions. Enrichment learning offers nonacademic programs to students aged between two and 18 years. Technology solutions are business-oriented and provide enterprise-grade technology products and services to learning institutions. Content solutions offer learning content in both paper and digital formats to students.

TAL Education’s, or TAL’s, fiscal 2023 (February year-end) third-quarter results beat our expectations. Revenue was down 21% sequentially due to seasonality but was up 4% compared with the fiscal first quarter despite an unfavorable exchange rate. Based on the better-than-expected results, we assume 7% higher revenue for learning services and 21% higher revenue for content solutions, which lifts our 2023 revenue forecast to USD 1 billion from USD 935 million. We now expect revenue to recover to 42% of the 2022 level by 2027 compared with 38% in our previous forecasts. Accordingly, we increase our fair value estimate to USD 6 per share versus USD 5.60 previously. Although we expect steady growth to continue, the share price is 30% above our fair value estimate, which implies that investors are paying too much of a premium for uncertain growth potential. Based on our estimate, TAL’s revenue must fully recover to the 2022 level by 2027 to justify the current valuation.

TAL Education, or TAL, repositioned itself as a smart learning solutions provider after regulatory changes in 2021 decimated the K-9 academic afterschool tutoring industry. It has since realigned its business focus toward enrichment learning, learning technology solutions, and content solutions. Enrichment learning offers nonacademic programs to students aged between two and 18 years. Technology solutions are business-oriented and provide enterprise-grade technology products and services to learning institutions. Content solutions offer learning content in both paper and digital formats to students.

We keep our fair value estimate at USD 5.60 following TAL Education’s, or TAL’s, in-line fiscal 2023 (February year-end) second-quarter results. It’s good news that TAL managed to break even in the quarter, and we think market reaction, with TAL’s shares up 10%, reflects increased confidence in its business transformation. June to August is typically TAL’s peak quarter, and TAL is likely to record sequentially lower revenue and return to losses in the November quarter. We keep our 2023 revenue estimate at USD 935 million, but we increase our loss estimate to USD 98 million from USD 86 million after factoring in higher operating expenses. We expect TAL to turn profitable in 2025 as businesses scale up. TAL still trades at a 22% discount to our fair value estimate. The current USD 2.8 billion market cap is about 8% lower than its USD 3.1 billion net cash position as of August 2022. While the net cash position should support TAL’s share price, New Oriental Education is our preferred pick given its better near-term earnings prospects.

TAL Education, or TAL, repositioned itself as a smart learning solutions provider after regulatory changes in 2021 decimated the K-9 academic afterschool tutoring industry. It has since realigned its business focus toward enrichment learning, learning technology solutions, and content solutions. Enrichment learning offers nonacademic programs to students aged between two and 18 years. Technology solutions are business-oriented and provide enterprise-grade technology products and services to learning institutions. Content solutions offer learning content in both paper and digital formats to students.

We raise our fair value estimate to USD 5.60 from USD 3.06 after a fresh look at TAL Education, or TAL. We think there is better visibility now after its first quarter of results without the contribution from the K-9 academic afterschool tutoring business. No doubt that revenue will plunge in 2023, but we expect it to rebound to 38% of the 2022 level by 2027 as the new businesses grow. We forecast TAL to turn profitable in 2025 as operating expense ratio improves. Our fair value estimate translates to USD 3.6 billion equity value, about 4% higher than the net cash and investment position. The current share price is 18% lower than our fair value estimate, but we prefer a higher margin of safety given business uncertainty is very high.

TAL Education, or TAL, repositioned itself as a smart learning solutions provider after regulatory changes in 2021 decimated the K-9 academic afterschool tutoring industry. It has since realigned its business focus toward enrichment learning, learning technology solutions, and content solutions. Enrichment learning offers nonacademic programs to students aged between two and 18 years. Technology solutions are business-oriented and provide enterprise-grade technology products and services to learning institutions. Content solutions offer learning content in both paper and digital formats to students.

TAL Education Group’s loss in the fourth quarter of fiscal 2022 was expected as the K-9 academic after-school tutoring business, which accounted for about 80% of total revenue, was terminated in December. TAL Education announced three new business initiatives, but we are cautious about their contributions at this early stage.

Beijing’s clampdown on China's education sector has slammed the bottom line of TAL Education Group, or TAL Education. The company recorded a net loss of USD 99.4 million for the third-quarter fiscal year 2022, ended in calendar year November 2021, compared with a net loss of USD 43.6 million over the same period in 2020. The reported net revenue of USD 1.02 billion for the third quarter of fiscal year 2022 dropped 8.8% year over year. The basic and diluted net loss per ADS were both USD 0.15, the non-GAAP basic and diluted net loss per ADS, excluding share-based compensation expenses, were both USD 0.09. TAL Education’s cash and cash equivalent reached a total of USD 2.8 billion.

Tomorrow Advancing Life Education Group (also known as TAL Education) is a large-scale, leading provider of private K-12 after-school tutoring in China.

TAL Education announced on Nov. 11 that in compliance with the Chinese government to alleviate stress for students in mandatory education and after-school tutoring (also known as AST services) opinion and applicable rules, regulations and measures, it plans to cease offering tutoring services related to academic subjects to students from kindergarten through grade nine (also known as K-9) at all learning centers across China by end-2021.

Tomorrow Advancing Life Education Group (also known as TAL Education) is a large-scale, leading provider of private K-12 after-school tutoring in China.