Maintain the new Oriental equity neutral (Neutral) Rating

Goldman Sachs today released a study to maintain the "neutral" (Neutral) rating of the new Oriental (nyse:edu) stock and cut its target share price from $27.5 to $26.

The following is a summary of the report:

The new Oriental's fiscal year 2014 was more profitable than expected in the third quarter, but the fourth-quarter guidance forecast was lower than expected. The company's third-quarter net revenue was $254 million (up 16% per cent), compared to the average estimate by Goldman Sachs/Bloomberg analyst 5%;non-gaap (Non-US GAAP) earnings for each share of ads (US depository shares) were 0.30 U.S. dollars, 0.04 per cent higher than Goldman Sachs/analysts ' average forecast 0.02 dollars. The company expects net revenue for the fourth quarter to be 278 million to $288 million (up 18% per cent in median terms), which is 7%/4% lower than the average Goldman Sachs/analyst estimate, according to median value.

New Oriental third quarter Learning center reduced by 11. Cost reduction drives the company's performance beyond our expectations, mainly from tax savings, but the income from adult English and domestic exam coaching has slipped. New Oriental bubble Children's English is also weakened by the shift to new projects in the next few quarters. The company's management plans to speed up the opening of the new centre in the fourth quarter and fiscal year 2015 and to update the local school supervisors ' KPIs (key performance indicators) to spur expansion and focus on higher-margin cities.

Online education is also the focus of the company, the company's key strategic elements are: (a) New Oriental will be added to the Koolearn, the site provides new Oriental 2000 online courses, with 9 million registered users; (b) New Oriental will digitize user data and learning materials, To provide web-based learning mode; (c) New Oriental will distribute content through "leading Internet companies" but does not disclose details of cooperation.

In fiscal year 2015, New Oriental will invest 25 million to 30 million dollars in marketing and development budgets, accounting for about 2% of the expected revenue for fiscal year 2015 (based on Goldman Sachs data). We will increase the earnings forecast for the new Oriental 2014 per share by 2% to reflect the third-quarter results, but cut the earnings forecast for fiscal year 2015/2016 2%/1% to reflect online business and expansionary investment. That would pull our 12-month target share price from $27.5 to $26, but Peg, which has a relative profit growth rate, remains 0.85 times times higher. We maintain the "neutral" rating of the unit.