How do you dance under the hustle and bustle?
Editor’s note: This article is from WeChat public account “US Stock Research Institute” (ID: Meigushe).
On October 22, New Oriental released its first quarter financial report for the fiscal year 2020. The data showed that its revenue was $1,071.8 million, a year-on-year increase of 24.6%, and net profit was $2.09, a year-on-year increase of 69.6%. We see a simultaneous increase in both New Oriental revenues and profits, which may be related to the coincidence of this quarter and summer vacation.
But during the summer, we also saw fierce competition. This not only leads to the loss of some students, but also causes the cost to rise. From this summer’s summer student competition, we can see that the publicity costs of New Oriental and other institutions have broken through the “record”, but this summer’s summer competition is only the beginning. With the arrival of the capital winter, financing is tightening, major online. Education brands will be more eager to compete for students. This can cause a series of problems.
Of course, the relevant departments have issued a number of opinions and regulations to prevent these problems. However, the regulations have two sides, although it is conducive to the formal development of the market, but for New Oriental, this will also be a big test, after all, pre-existing tuition and teacher qualifications have become the lifeblood of all training institutions. However, New Oriental is also actively investing to improve its ecological construction. The US Stock Research Institute will continue to pay attention to the follow-up development of the event.
Revenue profit growth, New Oriental continues to expand rapidly
In terms of revenue, New Oriental’s first quarter of fiscal year 2020, which was the third quarter of 2019, was $1,071.8 million, a year-on-year increase of 24.6%. Revenue growth is mainly related to expansion in recent years. In recent years, the education market has been very hot. New Oriental has expanded rapidly like other educational institutions. Its New Oriental Online is listed in Hong Kong this year. In addition, the third quarter was just during the domestic summer vacation, and the hot summer enrollment became one of the main reasons for the growth of New Oriental revenue.
From a profit perspective, New Oriental’s net profit was $209 million, up 69.9% year-on-year. Net profit for the second quarter of 2019 was $123.2 million, down 22.2% year-on-year, and was reversed in the third quarter. Operating profit was $246 million, a year-on-year increase of 52.6%. Non-GAAP operating profit increased by 46.8% year-on-year to US$257 million, non-GAThe operating profit margin of AP increased from 20.4% a year ago to 24.0%, an increase of 360 basis points year-on-year.
From the business point of view. The data shows that New Oriental’s student enrollment in the third quarter of 2019 was approximately 2,609,200, up 50.4% year-on-year. New Oriental has been in a relatively fast development. As of August 31, 2020, the total number of learning centers reached 1,261, a net increase of 161 compared with the same period of last year (the total number of learning centers in the same period in 2019 was 1,100), a net increase of 7 compared with the previous quarter (FY 2019) The total number of learning centers in the fourth quarter was 1,254). As of August 31, 2019, the total number of schools was 95.
At the same time, New Oriental Board Chairman Yu Minhong said that the New Oriental K12 primary and secondary school general education business continued to develop steadily this quarter, achieving a revenue growth of about 35%, which is still the main driving force for the company’s performance growth. Among them, the secondary school business achieved a revenue growth of approximately 33% year-on-year, while the primary school business income increased by approximately 38% year-on-year.
From the above analysis, it can be seen that the financial performance of New Oriental is generally good, and revenue and profit are on the rise. Although the second quarter of FY 2020 may cause a decline in revenue due to seasonal factors, with the expansion of New Oriental, future revenues and profits may gradually increase and tend to stabilize. However, we still need to pay attention to the competitive pressures facing New Oriental, which may become a big test for his future.
The expansion of the education market has triggered capital enthusiasm, and competition has intensified costs.
The education market is also watching the world. New Oriental’s financial performance is closely related to the market. On the one hand, with the development of the market and the expansion of scale, New Oriental’s revenue growth and strength have increased. On the other hand, the expansion of the market has triggered a large number of capital to enter this market, leading to increased competition, and the result of competition is either a big one or a bankruptcy. This puts a higher test on New Oriental, which has been established for many years.
(1) The three major education markets are expanding rapidly, and the seasonal income of educational institutions changes
The expansion of the market has had a profound impact on all institutions, and New Oriental is no exception. Relevant data show that by 2020, under the policy of promoting the second child policy and the new generation of parents to pay attention to children’s education, the pre-school education market will exceed 540 billion yuan. The K12 education market is expected to reach 880 billion yuan by 2020, with a compound growth rate of about 12% in the next five years. The total income of the vocational education market will reach 926.7 billion yuan. These three major markets in the future may become the entire educationThe direction of the industry.
New Oriental has laid out these three major markets early. In pre-school education, New Oriental launched Bubble Kids English in 2014. Bubble Kids English is catching up with the education market in recent years, maintaining an annual growth of about 50%. In K12 education, New Oriental launched the Youneng Middle School. The data shows that its teaching points cover more than 60 cities across the country, with more than 700 excellent learning centers and more than 2.6 million trainees per year. In terms of vocational education, New Oriental also has a layout.
This is what makes New Oriental’s revenue grow. According to the financial report, New Oriental’s net revenue for the first fiscal quarter ended August 31, 2019 was $1,071.8 million, compared with $860 million for the same period last year, an increase of 24.6% year-on-year, exceeding market expectations of $1.069 billion. However, we also need to pay attention to the seasonality of educational institutions’ revenues. Compared with its fourth-quarter forecast, we expect it to expect net revenues of $753.6 million to $771 million in the fourth quarter. Compared with the third quarter, there will be a decline, which may be related to the loss of students due to the start of school in the fourth quarter.
(2) Capital inflows lead to fierce competition, and rising costs are difficult to make profit
Market expansion is also a double-edged sword, and fierce competition may be the main problem facing New Oriental in the future. At present, the competitors of New Oriental offline education are mainly good futures, and there are many online competitors, including 猿 counseling, vip kid and other brands. The most intuitive impact of increased competition is the increase in costs. According to incomplete statistics, as of early July, the online education companies participating in the summer enrollment wars have totaled 3 to 4 billion yuan of advertising, learning and thinking, counseling and homework. The advertising has reached 10 million.
The rise in costs has made earnings difficult. Looking at the data over the years, we find that the reasons and costs of the decline in New Oriental profits are inseparable. According to financial report data, its third quarter cost was 825.6 million yuan, a year-on-year increase of 17.9%. Among them, the income cost was $440.2 million, a year-on-year increase of 19.8%. The second quarter revenue cost growth rate was 24.0%, which was approximately $371.2 million.
We see that the cost of New Oriental is growing at a high rate, and the cost is mainly used for teachers’ overtime compensation and school district expansion expenses. It can be seen that other competitors have a greater impact on New Oriental.
Relevant supervision by relevant departments, multi-party investment to expand business and improve ecology
In addition to competition, New Oriental is also facing regulatory issues. Recently, the management of educational institutions has become more stringent,It will have a certain impact on New Oriental operations. However, we also noticed that New Oriental has been focusing on investment in recent years, trying to expand business boundaries. Although the investment income is not obvious at present, it may be a key project in the future.
(1) Supervision strengthens the daily operation of New Oriental, and the market is legally conducive to long-term development
Regulatory, like the market, is also a double-edged sword. For New Oriental, the strengthening of regulation will place higher demands on its daily operations. Last year, the relevant departments stipulated that teachers of educational institutions must hold teacher qualification certificates. Relevant data indicates that only 50% of teachers in New Oriental are eligible. It is also stipulated that educational institutions may not charge tuition fees for more than three months. It is well known that educational institutions have certain requirements for the flow of funds, especially during periods of rapid expansion.
However, formalization will also promote the orderly development of the market, not to vicious competition. From the summer of this year, the parties can compete for students to see that vicious competition will lead to rising costs, which is not conducive to corporate profits. In July 2019, after the Ministry of Education and other six departments jointly announced the “Implementation Opinions on Standardizing Online Training”, New Oriental Online’s share price rose 11.47%. Moreover, as a veteran institution, New Oriental is stronger than other brands in terms of faculty strength and capital. In the case of the same game rules, the natural advantage is greater.
This has had a major impact on New Oriental’s deferred income. Pre-existing tuition fees are deferred income. As the supervision deepens, this part of the income has decreased a lot compared to the past, and it has a greater impact on cash flow. However, deferred income is a liability, which also reduces the risk of New Oriental debt.
(2) New Oriental strengthens its investment and expands its business, so that it will not let the future go.
New Oriental has strengthened its investment and expansion business in recent years. According to the report of Yiou.com, New Oriental invested in the early education institution Uberle in June 2018, and acquired the international art education institution Sphinx in November 2016. In April 2018, it invested in online English teaching box fish, March 2017. Invested in online K12 tutoring institutions, learning and so on. Relevant data shows that since 2011, New Oriental has invested nearly 80 times. Through investment, New Oriental has realized the simultaneous development of diversified businesses and improved its future development potential.
But it is worth noting that there are two problems, one is the cost of investment. In the fourth quarter of the 2019 fiscal year published by New Oriental, the long-term investment has lost more than 30 million US dollars, which is good for the future. presence.
According to Yiou.com, it is good to have a net loss in the first quarter of the 2020 fiscal year, and the amount of impairment of investment projects exceeds 80 million US dollars, which is one of the main reasons for the loss. It can be seen that this project is not easy to succeed. Investment is a long-term process. Therefore, these investment businesses may not help New Oriental’s revenue growth in the short term, and may even delay.
Another big problem is that the future is also increasing foreign investment, which will affect New Oriental’s investment plan. according toStatistics show that the number of foreign investment in the future is more than 140, almost double that of New Oriental’s foreign investment. And good future investment is not only education and training companies, but also high-tech, such as geek big data, small box technology, Xiaoxin. This may affect the “two poles” in the future.
Overall, New Oriental’s earnings report is better. Although there are still some problems, it can be seen that he is gradually improving. Lenovo raised the problems exposed at the New Oriental Annual Meeting at the beginning of the year. We believe that New Oriental still needs some time to solve it, especially now that the education market is changing and more cautious.