Guosen Securities has released a research report maintaining an "Outperform" rating on
Faced with uncertainties in the operating environment stemming from reforms to secondary and higher education entrance examinations and geopolitical factors, the company, as a leader in K-12 education and study abroad services, is further focusing on high-quality development. Building on its core advantages in teaching research, brand strength, and user base, it continues to enhance capabilities and quality. The results are gradually being reflected in improved student renewal rates and operating profit margins.
Considering the stabilization and positive trend of its core education business against a backdrop of low expectations, alongside the turnaround to profitability for
Revenue growth accelerated, and operating efficiency improved significantly in the second quarter of fiscal 2026. The company achieved net revenue of $11.91 billion, a year-on-year increase of 14.7%, surpassing market expectations of 12%. Non-GAAP operating profit reached $891.3 million, surging 206.9% year-on-year, indicating continued improvement in profitability. As of the end of the reporting period, deferred revenue stood at $21.62 billion, up 10.2% year-on-year.
The new education business remained the core growth driver during the period, benefiting from higher renewal rates, with a year-on-year increase of 21.6%. This represents an acceleration from the 15.3% growth seen in fiscal 2026's first quarter. Non-academic tutoring services covered approximately 1.058 million student enrollments, up 6.4%. This moderated growth is attributed to an expanding base and the company's increased focus on improving teaching quality and renewal rate metrics. Active paying users for the intelligent learning system reached 352,000, a significant increase of 34.9%.
Study abroad-related businesses collectively saw a slight year-on-year increase, performing better than prior market expectations of a 5% decline, demonstrating brand resilience. Specifically, overseas test preparation revenue grew 4.1% year-on-year, while consulting services revenue declined 3.0%. Revenue from adult and college student-related businesses increased 12.8% year-on-year, though the growth rate slowed slightly compared to the 14.4% increase in fiscal 2026's first quarter.
The company's focus on high-quality development is clear, emphasizing prudent expansion of learning centers and prioritizing renewal rates and profitability metrics. The operating profit margin continued to recover by the end of the second quarter of fiscal 2026. The total number of learning centers reached 1,379, a modest 2% increase from the previous quarter, consistent with the high-quality development strategy.
The Non-GAAP operating profit margin for the period increased by 4.7 percentage points year-on-year to 7.5%. The gross margin was 53.3%, up 1.3 percentage points. The administrative expense ratio was 31.4%, largely flat year-on-year. The sales expense ratio was 16.3%, down 2.6 percentage points, primarily benefiting from the cautious center expansion strategy and improved education business renewal rates. The company plans to continue enhancing profitability through organizational optimization, such as the merger of the International Education division with the Future Abroad consultancy in January 2026, and technological advancements.
For the third quarter of fiscal 2026, the company expects U.S. dollar-denominated revenue to increase 11-14% year-on-year. Furthermore, it has raised its full-year U.S. dollar-denominated revenue growth guidance to 8-12%, up from the previous forecast of 5-10% growth for fiscal 2026, reflecting robust growth across its business lines.
Potential risks highlighted include intensifying industry competition, stricter regulatory policies, slow improvement in business penetration rates, and shareholding reductions by major shareholders.
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