New Oriental Education Continues Restructuring in the Near Term

We have lowered our fair value estimate of New Oriental Education, or EDU, to USD 2.11 from USD 2.42 in light of the company’s cessation of tutoring services related to academic subjects to students from kindergarten through grade nine, or K-9, academic after-school tutoring services (or AST services) at all learning centers across China by the end of 2021. As a result of the elimination of these services, EDU also laid off 60,000 employees; a seismic reduction of the more than 88,000 full-time employees and about 17,000 contract teachers and staff it reported as of May, according to its latest annual report. Given the lack of visibility into post-restructuring cash flows, we see limited upside catalysts in the near term. EDU expects to host its semiannual analyst meeting before the end of February 2022.