Maintain new Oriental stock (NYSE:) "Hold" rating

U.S. investment company T.h.capital recently issued an investment report to maintain the new Oriental stock (NYSE:) "Hold" rating.

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

We maintain a "hold" rating for the new Oriental stock because we believe that the new Oriental will continue to experience a difficult period, as profit margins in new Oriental continue to decline, and the Securities and Exchange Commission (SEC) is also under investigation. With regard to profitability, we think that the new Oriental management is also uncertain about the long-term profitability trend, and the recent lack of appropriate strategies to maintain profitability stability. With regard to the SEC investigation, we do not think there are any serious problems in the new Oriental, but there are still some uncertainties. Currently, we want to see a balance between business expansion and profitability, as well as the SEC's findings. Therefore, we continue to maintain the new Oriental "hold" rating.

Margin uncertainty is a problem: we believe that the future of new Oriental will undergo a difficult period. Starting last year, new Oriental began to expand K-12 business, mainly including "1 to 1" training courses. We think the move is moving from a high-margin business to a low-margin business. In fiscal 2012, new Oriental operating margins fell to 15.1% from 20% in fiscal year 2010. We believe that the new Oriental does not yet have the appropriate strategy to stabilize the still declining margins.

The SEC investigation remains uncertain: The recent SEC probe will create a lot of uncertainty about new oriental stocks. New Oriental is expected to submit its annual report by the end of September, when the new Oriental audit firm Deloitte will resign is still unknown. So in the short term, the SEC's investigation will continue to affect the performance of new Oriental equities.

Quarterly results: In the quarter of 2012, the new Oriental revenue was 193.3 million U.S. dollars, higher than the industry's average expected 187.1 million dollars and our expected 188.2 million dollars. But based on US GAAP, each share of diluted earnings is 0.10 dollars, below the industry's expected $0.11 trillion and our expected $0.14 trillion.

First quarter forecast: New Oriental Forecast, in the 2013 fiscal year, revenue will reach 342.7 million U.S. dollars to 356.3 million U.S. dollars, year-on-year growth of 26% to 31%.

Lower performance forecasts: with a temporary downturn in the first-tier cities, we lowered our revenue forecast for fiscal year 2013 from $355 million to $345.3 million, lowering the projected earnings per share from $0.75 to $0.72. For the entire 2013 fiscal year, we lowered our revenue forecast from $998.3 million to $988.8 million, lowering the projected earnings per share from $1.14 to $1.03.

Valuation: We maintain the "hold" rating of the new Oriental stock.