New Oriental Education Near-Term Pain; Long-Term Outlook Positive

We maintain our fair value estimate for New Oriental Education at USD 2.11. As anticipated from Beijing’s clampdown on the China education sector, the firm’s bottom line was hit hard with a net loss of USD 875.9 million for the first half of fiscal-year 2022 (ending November), versus the net profit of USD 228.6 million over the same period in 2020. This is despite fiscal 2022 first-half revenue rising 5% year over year to USD 1.97 billion. The net loss is largely due to restructuring charges as the firm moves its business to focus on non-academic offerings. The losses are in line with our assumptions that these restructuring costs will continue to be reflected in the forthcoming three quarters and should also impact fiscal 2023 income. Because of the change in business, we forecast fiscal 2023 sales to decline 41.8% year on year. On the positive side, the firm’s cash and cash equivalent reached a total of USD 1,027 billion.