Morgan Stanley maintains new Oriental's target price of $38

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Beijing time January 22 Morning News, Morgan Stanley published a study today, the New Oriental (nyse:edu) to maintain the stock rating of "overweight" (overweight) unchanged, and its target price from 29.20 U.S. dollars to 38.00 U.S. dollars.

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

Student enrolment rebound;

Changes：

The target price was raised from USD 29.20 to $38.00;

The earnings of US depository receipts for fiscal year 2014 and 2015 are expected to increase by 4% and 11% respectively.

New Oriental's performance was strong in the second quarter. The company's profit margins are expanding on track, and student enrolment has bounced back in the financial season, creating a solid third-quarter outlook. We reiterate that the new Oriental shares are rated "overweight" and raise their target price to $38 trillion, which means we set the 12-month earnings ratio at 26 times times.

Earnings exceeded expectations: New Oriental's second-quarter sales were 208.3 million U.S. dollars, up 25.6% from a year earlier, 2% higher than we had expected, up from 22% to 27% per cent year-on-year. In the second quarter of the new Oriental, the US depository receipts were diluted at $0.03, better than our expected loss of $0.07 per share, mainly due to firm cost controls and the help of operating leverage.

Favorable factors:

1 The core business of New Oriental (overseas and primary and secondary education) accounted for 77% of its total revenue, and the business continued to show a solid performance, with revenue from overseas and primary and secondary school services growing by 28% and 26% per cent, respectively.

2 The total number of registrations in the second quarter grew by 11.8% per cent year-on-year to 565,100, up 2% from a quarter earlier. The number of registered growth accelerated year-on-year, with the main impetus coming from primary and secondary school counselling services (registered growth of 16% per cent year-on-year).

3. Network optimization and robust cost-control measures continue to drive new Oriental profit margins (expected to exceed the company's own expected 16% to 17%). The number of total learning centers in the second quarter of new Oriental was reduced by 2% to 711 (11 new and 13 closed).

4 The new Oriental forecast that the third quarter sales year-on-year growth of 19% and 24%, in line with our expectations.

Adverse factors:

1 The average price of a product is only 9.5% per cent year-on-year; the company plans to limit the percentage of VIP sales to 30%.

2 the registration of overseas test preparation business was reduced by 1% Year-on-year, but was offset by the rise in average prices.

Maintain an "overweight" rating and raise the target price to 38 US dollars:

Given the resilience of new Oriental registrations and the prospect of a good profit margin, we will increase the earnings forecast for US depository receipts for fiscal year 2014 and fiscal year 2015 by 4% and 11% respectively.

The new Oriental has a 26 times-fold earnings ratio based on the expected earnings per share in 2014, and the new Oriental has a 22 times-fold earnings ratio based on 2015 's expected earnings per share. Profit growth in new Oriental is expected to reach 30% per annum. New Oriental has a healthy balance sheet, with net cash accounting for 20% of the company's market capitalisation.