Guosen Securities reiterated its "Outperform" rating on NEW ORIENTAL-S (09901), citing its clear quality enhancement strategy, positive earnings outlook, and attractive shareholder returns. The firm believes the company's core strategy of "improving capabilities and quality" aligns with the industry's shift from "post-pandemic supply shortages" to "quality-first" trends. This is reflected in the steady recovery of adjusted operating margins and improved student retention rates in K12 businesses, laying the foundation for future revenue growth.
The brokerage maintains its FY2026-FY2028 adjusted net profit forecasts at $430 million/$480 million/$530 million, corresponding to P/E multiples of 23x/20x/18x. With deepening cost efficiency measures and improved conversion rates for K12 programs, there remains further upside potential for revenue and earnings growth acceleration.
Key highlights from Guosen Securities' analysis: 1. Under the capability and quality enhancement strategy, Non-GAAP operating margins improved steadily. In Q1 FY2026, revenue reached $1.523 billion (+6.1% YoY), exceeding the upper end of guidance (5%). Non-GAAP operating profit grew 11.3% to $336 million, with margins expanding 1ppt to 22%. Non-GAAP net profit attributable to shareholders was $258 million (-1.6% YoY), with the decline mainly due to dividend-related tax provisions. Deferred revenue rose 10% YoY to $1.907 billion.
Business segment performance: - K9 education new business revenue grew 15% YoY, with 530,000 non-academic training enrollments (+10%) and 452,000 active paid users for learning devices (+40%), maintaining robust growth despite sequential slowdown from Q4 FY2025's 33% growth (affected by summer scheduling and regional discounts). - High school training revenue increased 7% YoY, also impacted by scheduling and discounts. For Q2 FY2026, the company plans further quality improvements in K12 products, expecting accelerated revenue growth through higher renewal rates. - Overseas test prep/consulting revenue grew 1%/2% YoY respectively, outperforming previous decline expectations due to improving external conditions and expansion in non-US markets and younger demographics. - College student business revenue rose 14% YoY, beating 10% growth expectations, driven by market share gains through teaching and service quality.
Outlook: For Q2 FY2026, the company guides for 9%-12% YoY net revenue growth, while maintaining full-year FY2026 guidance of 5%-10% growth. On shareholder returns, NEW ORIENTAL announced a three-year plan to distribute no less than 50% of prior fiscal year's net profit to shareholders. For FY2026, the board approved approximately $190 million in cash dividends and a $300 million share repurchase program over 12 months, totaling 132% of FY2025 net profit. At current market cap, this represents a ~5.1% shareholder yield.
Risks include intensifying competition, regulatory tightening, slow business penetration growth, and shareholder减持.