Days Hao Capital to maintain the new Oriental buy target price reduced to 29 U.S. dollars

Beijing Time April 29 Evening news, investment company Days Hao Capital (t.h.capital) issued an investment report today to maintain the new Oriental stock (nyse:edu) "Buy" rating, the target share price from 38 U.S. dollars to 29 U.S. dollars.

The following is a summary of the contents of the report:

In the third quarter of the new Oriental 2014, earnings per share was strong, but revenue and revenue forecasts for the fourth quarter were disappointing. We believe that the slump in revenue is mainly because the new oriental slows the pace of expansion of the teaching center. The slowdown in the teaching center is due to the inefficient implementation of the new Oriental, but as the implementation problem is solved, we believe that new Oriental revenue will rebound. In addition, new Oriental is increasing its investment in online education, which will allow the company to reach millions of of students who are not currently in the new Oriental training, thereby further expanding the content distribution of the new Oriental. In view of the implementation problem and the investment in online education, we continue to maintain the "buy" rating of the new Oriental stock, but to reduce the target share price from 38 US dollars to $29.

Third-quarter results: Revenue was 254.4 million dollars, well below Wall Street's expected $267.2 million trillion and our expected $262.8 million trillion. New Oriental expects revenue for the fourth quarter to reach $278 million trillion to $287.6 million trillion, up 16% to 20% per cent year-on-year. The forecast is below Wall Street's expected $295 million trillion, an increase of 23% per cent year-on-year. We believe that the slow growth in revenue is mainly due to the slow pace of expansion of the teaching center in New Oriental. In the past 5 quarters, New Oriental has added 39 teaching centers, while closing 89 homes. As of the end of the third quarter, the number of new Oriental teaching Center is 716, and as of the second half of the 2013 fiscal year ended 747. In the third quarter, new Oriental only added 5 teaching centers, far below the company's expected 10 to 15. On the positive side, although the number of teaching centers has decreased, the number of admissions has increased by 4.5% per cent year-on-year, which means that the efficiency of these teaching centres is improving. As a result, the new Oriental third quarter earnings per share diluted 0.27 U.S. dollars, exceeding the Wall Street expected 0.23 dollars and our expected 0.24 dollars.

New Oriental is expected to increase the number of students by setting up 60 to 70 teaching centers in the next 5 quarters from the quarter-four quarter. But the ability to achieve that goal depends on the company's implementation. We expect that, starting from June 1 this year (fiscal year 2015), new Oriental will develop appropriate internal assessment standards, not just profit margins, but also revenue gains. With such a new standard, implementation issues will be resolved. To this end, we expect the new Oriental 2015 revenue year-on-year Rise will reach 20.5%, higher than the previous forecast of 18%.

Internet education will be the engine of future growth: We believe that Internet education will be a strong engine of growth for the new Oriental, because it can attract millions of of students who are not yet able to attend new Oriental training. In this regard, the measures adopted by the new Oriental include: 1 investment koolearn.com;2) developing O2O bidirectional learning Platform and 3 working with Chinese Internet companies. We believe that these efforts will eventually be rewarded.

Adjustment of performance expectations: We will be the new Oriental quarter revenue forecast from 293.4 million U.S. dollars to 281 million U.S. dollars, diluted earnings per share is expected to remain unchanged at 0.26 U.S. dollars. The Revenue forecast for fiscal year 2015 will be lowered from USD 1.406 billion to $1.364 billion, with a diluted earnings per share expected to be lowered from 1.74 to $1.61.

Valuation: We continue to maintain the new Oriental stock "buy" rating, the target price from 38 U.S. dollars to reduce to 29 U.S. dollars.