New Oriental Education: Learning The Hard Lessons Of A Tougher Market

2025-04-29 05:38:38 ET

Summary

• New Oriental Education's Q3 FY25 results show deceleration in core education business and impact from Sino-US tensions on overseas business, with a focus on profitability over growth.
• We maintain a SELL rating due to macroeconomic challenges, discretionary nature of EDU services, and increasing competition in K-12 and AST segments.
• Sino-US tensions pose risks to overseas test prep and consulting, with potential downside to EDU's revenue and earnings growth.
• EDU trades at 6x forward EBITDA, but we assign a 5x target multiple, implying a 10% downside from the current level.

New Oriental Education ( EDU ) (NWOEF) reported its FY3Q25 quarterly results for the three-month period ending March 31, which showed ongoing deceleration of the core education business, while overseas business is beginning to see the impact of geopolitical tension between China and the rest of the world. Q4FY25 guidance also did not offer any comfort in that EDU will return to growth mode, but instead management cited the initiative to focus on profitability over revenue growth, which means that growth is likely to remain challenged given China’s weak macro backdrop, and that cost-cutting will be implemented to drive profitability....

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