Haitong International released a research report maintaining an "Outperform" rating on NEW ORIENTAL-S (09901). The firm continues to value the company's FY2026 Non-GAAP Net Profit using an 18x P/E multiple. Based on upwardly revised earnings expectations, the target price has been raised from HK$49 to HK$52. The firm observed that the company's cost-reduction and efficiency-enhancement measures continue to yield results. Concurrently, channel checks indicate progress in optimizing teacher allocation and enriching product diversity, covering areas such as OMO, one-on-one tutoring, small group classes, and subject expansion. The firm believes the steady growth of the company's K-12 business is sustainable. Although the overseas study business faces revenue pressure, the company demonstrates a clear determination to improve this segment's profit margin. Despite the company's revenue currently maintaining low double-digit growth, the firm advises investors to focus more on profit growth performance, as management has shown a firm commitment to creating returns for investors. Haitong International's main views are as follows: In the 2QFY26 results review, total revenue increased 15% year-over-year to $1.191 billion, exceeding consensus estimates by 3% and surpassing the upper end of the company's previous 9%-12% guidance. Non-GAAP operating profit surged 223% year-over-year to $89 million, beating consensus estimates by 62%. The corresponding Non-GAAP operating profit margin was 7.5%, an increase of 2.8 percentage points from the consensus estimate of 4.7%. Deferred revenue was $2.1615 billion, up 10.2% year-over-year, compared to a 10% increase in 1QFY26. K-12 business revenue in 3QFY26 is expected to accelerate, primarily benefiting from improved student retention rates and an increased number of winter holiday classes. Over the past few quarters, the company has persistently worked to enhance product strength and teaching quality, leading to significant improvements in user retention rates for high school and non-academic K9 businesses. Given that the Chinese New Year falls later this year, the winter holiday class schedule is more extensive than last year. Based on this, the firm forecasts K-12 business revenue to grow 19% year-over-year to $815 million. High school business revenue is expected to increase 18% year-over-year, aided by one-on-one tutoring and OMO, while the new K9 business is projected to grow 23%, primarily benefiting from a strong recovery in junior high school. The overseas study business remains under pressure, thereby dragging down the overall revenue of the core education segment. Amid ongoing macroeconomic and international instability, the entire overseas study industry remains sluggish. Leveraging its long-established brand recognition and strong execution capabilities, the company continued to gain market share in Q2 FY26, still achieving 1% year-over-year growth. The firm expects this trend to continue into the next quarter. However, due to the highly seasonal nature of the overseas study consulting business, the firm holds a relatively conservative view on performance in Q4 FY26. Looking ahead to next year, influenced by the overall industry's lack of recovery and the consolidation of the company's test preparation and study abroad consulting businesses, the firm anticipates a decline in overseas study business revenue. The cost-reduction and efficiency-enhancement strategy is expected to continue delivering results in subsequent quarters. The core education segment's operating profit margin increased by 3 percentage points in 2QFY26, primarily due to the effective implementation of cost-control measures, including prudent learning center expansion and marketing expense management. The firm believes these measures will continue to be effective, forecasting that Non-GAAP Operating Profit Margin for 3QFY26 and FY26 will increase by 1.4 and 1.6 percentage points year-over-year to 13.4% and 12.9%, respectively. Risk factors include a weakening macroeconomic environment and intensifying industry competition.
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