The target price rose from 3.64 dollars to 4.75 dollars

Our confidence has rebounded with a renewed focus on improving profitability and utilization, but we have remained on the sidelines until the rate and margin of return are clear. We gave a big neutral rating and raised our target share price from 3.64 to 4.75 dollars.

Second-quarter results exceeded expectations

Education's second-quarter revenue was 114.6 million dollars, above our projected $112.8 million trillion (Wall Street predicts 112.2 million dollars). The earnings per share (EPS), calculated by US General Accounting Standards (GAAP), are 0.26 dollars higher than we and Wall Street forecast for $0.24. In the second quarter, the total session reached 3.7 million hours, an increase of 6.1% per cent, which is consistent with our forecast, while the average hourly tuition fee is 31.50 USD, 1% higher than our forecast.

Profit margins rise in the second quarter

The non-GAAP operating profit rate for the second quarter was 19.8%, which was higher than our forecast of 17.1%, up from 14.1% a year earlier. The rise in profitability is mainly due to a slowdown in the opening of new teaching centres and a renewed focus on improving the utilization of teaching centres. The second quarter of the school's education and Teaching Center net reduction of two (open 2, close 4), a total of 387 at the quarter.

Improved utilization of teachers and teaching centers

The second quarter teacher utilization for the average teacher 326 hours (up 9%), the Teaching center utilization rate of 12.8 hours per square metre (increase 7.6%). We expect to increase the gross profit margin of 88 in fiscal year 2013 by increasing the utilization of teaching centers and slowing down the pace of opening new hubs (30 to 40 in fiscal year 2013 and 330% for less than 2012). Education in the first half of this year opened 10 teaching centers, the second half may open a new 20 to 30.

Adjust forecast

We raised the third-quarter revenue forecast from $80.3 million trillion to $81.6 million (guiding revenue: 79 million to 81 million dollars, Wall Street forecasts: 80.6 million dollars). Non-GAAP EPS forecasts for the third quarter were adjusted from a loss of USD 0.01 to a profit of $0.01 (guidance value of 0.01 to 0.02 dollars), reflecting utilization and increased gross profit margins. Management raised its guidance revenue for fiscal year 2013 from 342 million to 352 million dollars to 347 million to 352 million dollars (Jaffray forecast: 350.3 million USD, Wall Street forecast: 349.6 million dollars).

Risk

Enrollment ability, competition erode profit, economic recession, negative publicity, and adverse regulatory policies related to private education in China. (Darcy)