Bank of Communications International has raised its target price for NEW ORIENTAL-S (09901) by 19.6% to HK$55 from HK$46, while also increasing its target for the company's U.S. shares. The firm maintains a "Buy" rating, citing optimism about the demand and growth prospects of NEW ORIENTAL-S's K-12 tutoring-related businesses. Factors such as diversified age coverage, steady revenue growth, room for margin optimization, strong shareholder returns, and ample cash flow further support the positive outlook. Despite recent challenges in overseas study-related services, the company remains an industry leader.

In Q1 FY2026, NEW ORIENTAL-S reported revenue of $1.523 billion, up 6% year-on-year and 1% above expectations. Adjusted operating profit reached $336 million, with an operating margin of 22%, a 1-percentage-point improvement from the previous year. Adjusted net profit attributable to shareholders was $258 million, reflecting a net margin of 17%. The overseas study segment outperformed expectations, with test prep/consulting revenue growing 1% and 2% year-on-year, respectively, against an earlier projected decline of 5%. The university/adult business maintained steady growth, with revenue up 14%, while K-9 new business revenue rose 15%, driven by strong performance in learning devices over non-academic offerings.

The company announced a $190 million cash dividend and a RMB 300 million share buyback program, exceeding prior expectations. Management reaffirmed FY2026 revenue guidance, projecting 5-10% annual growth, with Q2 revenue expected to increase 9-12%, compared to the previous 9% estimate.

Improved student retention rates and product quality in K-12 businesses are expected to support steady revenue recovery, while ongoing efficiency measures should stabilize or slightly expand operating margins. Although overseas study-related services may remain under pressure, growth in youth language training (estimated over 25% YoY) and expansion in non-U.S./U.K. markets should mitigate revenue risks. The bank forecasts overall revenue growth above 10% for FY2026-2028, with sustained margin expansion.