New Oriental Reports Mixed September-November Results; Maintain FVE at USD 32.50

New Oriental’s revenue in its fiscal second quarter beat management's guidance, but operating margin declined sharply quarter on quarter. Besides seasonality and lockdowns, we attribute this partly to Koolearn, which recorded strong sequential revenue growth but declining margins, based on our estimate. We raise our revenue forecast for the year ending May 2023 to USD 2.76 billion from USD 2.6 billion, but our earnings estimate is largely unchanged at USD 122 million. The share price fell 12% overnight, which we attribute to disappointment on the part of some investors who had previously been too aggressive in their assumptions for Koolearn’s profit trajectory. We keep our fair value estimate at USD 32.50/HKD 25.50, and we consider the shares fairly valued.