JPMorgan keeps new Oriental rating at $40

Beijing time July 8 afternoon news, JPMorgan released a study today, to maintain the new Oriental (nyse:edu) Stock "overweight" (overweight) rating, and its target share price from 35 U.S. dollars to 40 U.S. dollars.

The following is a summary of the report:

We expect the new Oriental 2014-2016 earnings per share to achieve a composite annual growth rate of 23%, with a steady increase in the number of trainees and the average selling price of the main power source. We maintain the "overweight" rating of the unit and set its target share price at $40, a 53% rise from the current share price.

Revenue growth in fiscal 2015 will accelerate: The company is due to release its earnings on July 22, and we expect its revenue to grow in fiscal year 2014, as the company's clean-up effort against underperforming learning centers is in its final stages. We expect the company to unveil new growth strategy details, balancing organic revenue growth with stable and healthy profit margins. We expect a big increase in the number of admissions, tuition fees and operating leverage for fiscal 2015 and 2016 to boost profitability.

Raise earnings forecasts and set new target prices: We will increase the net profit forecast for the new Oriental 2015 and 2016 respectively by 3.9% and 5.8% per cent, in order to reflect the profit margin gains from the clean-up of underperforming learning centers in fiscal year 2014. We calculated the target price according to the cash Flow discount method (DCF) at USD 40, which is higher than the previous $35. Our earnings forecasts for fiscal year 2015 and 2016 were 1.3% and 8.2% higher than analysts ' average forecasts respectively.

Valuations, stock prices and risk: the current share price of new Oriental is 13.8 times times the 2015-year earnings ratio, which is 37% lower than that of similar Asian companies. Our target price for 40 dollars corresponds to 18.6 times times the 2016-year P/E ratio, with the current share price of similar Asian companies trading at 10% below the 2015-year earnings ratio. Key downside risks for the unit include higher wages and rent costs, and competition from Internet content providers and other knowledge-based service providers. (PEI)