EAST BUY: Strong Demand for Education (4Q23FY Conference Call Minutes)
Below is the summary of the fourth quarter performance conference call for the fiscal year 2023 of New Oriental EDU & Tech.US. For a review of the earnings report, please refer to "New Oriental: The Reversal Logic of New and Old Businesses is Gradually Being Realized".
I. Management's Feedback
1. Education Business: Revenue from overseas exam preparation and overseas consulting services increased by approximately 52% (YoY +62%) and 6% (YoY +13%) respectively. Revenue from domestic exam preparation services for adults and college students grew by 34% (YoY +43%).
2. Oriental Selection: In 4Q23, New Oriental's minority shareholders' net loss was $10.957 million, mainly contributed by Oriental Selection.
3. New Businesses
(1) Non-academic Subjects: Currently, non-academic courses are offered in approximately 60 cities, with further improvement in market penetration in first-tier cities. The number of student enrollments in this quarter was 629,000.
(2) Study Tours and Research Camps: This business has also achieved remarkable results. It aims to provide opportunities for K12 and university students to broaden their knowledge and cultivate their interests during their spare time. Research trips have been conducted in more than 50 cities nationwide, with the top ten cities contributing over 55% of the revenue for this new business.
(3) Intelligent Learning Systems and Devices: Approximately 60 cities have adopted these systems and devices this quarter, with 99,000 active paying users. The revenue contribution from the top ten cities in China accounts for approximately 60%.
- OMO System Transformation: $31.7 million was invested in this quarter.
5. Expansion of School Teacher Area: Mainly focused on expanding the classroom area of learning centers, with a small number of new learning centers being established. They will be opened in cities with better performance.
II. Analyst Q&A
Q1: What are the specific plans for the 15%-20% capacity expansion?
A: This is mainly due to the strong demand in the education sector, especially in [specific area]. Most new campuses will be opened in existing cities because some of the existing learning centers are almost full. We have no plans to enter new cities, and most new campuses will mainly provide non-academic courses for K12 and overseas-related businesses.
Q2: What are the main drivers of revenue growth?
A: The main drivers are the recovery of demand after the pandemic and economic revival. We rely on our brand advantage, high-quality teacher resources, and teaching content, and we continue to see industry opportunities.
The revenue guidance for the first quarter of fiscal year 2025 (32%-35% in USD and 40%-45% in RMB) reflects the current development of our business, and we are confident in improving the profit margin in the first quarter.Q3: What is the reason for the increase in sales expenses?
A: The profit margin will improve in the future, but in 24Q1 we will continue to increase some sales expenses, mainly focusing on education and Oriental Selection.
Q4: What is the profit margin situation for different business segments?
A: Due to the closure of many teaching centers last year and the reduction of teachers and staff, the fixed costs will decrease this year. Therefore, the profit margin of this business segment will improve. Secondly, the profit margin will also improve in the new business segment in the new fiscal year.
Revenue distribution of each business segment in 23Q4: Overseas business accounts for 11% during the peak season, overseas study consulting accounts for 17%, university and adult English accounts for 2-3%, new business collection accounts for 18%, and the rest includes high school and other businesses, including Oriental Selection.
The growth in 24Q1 mainly comes from the study abroad business, and the study abroad business is growing rapidly.
Q5: How is the cultural and tourism strategy planned?
A: Regarding cultural and tourism, we believe that there is great potential in the Chinese market. We have many teachers who can utilize their knowledge in Chinese history and culture to provide unique cultural and tourism products for middle-aged and elderly people, combining entertainment and cultural education.
In addition, we can also use our extensive online platform and school network as distribution channels. Currently, we have developed several high-quality cultural and tourism products in future tourist cities and provinces such as Hangzhou, Chengdu, Xi'an, and Gansu. These products are receiving support from infrastructure and gaining increasing attention in the market.
The cultural and tourism business is still in its early stages, and we will test the final products worldwide, monitor their progress, and continuously update the business. We started the Dubai business last year, which brought significant performance growth and profit to the group. We are very much looking forward to this round of cultural and tourism business in 23 years.
