$New Oriental EDU & Tech(EDU.US) Quick Read: At first glance, the overall performance for Q2 2025 shows that both revenue and operating profit meet guidance and expectations, but the performance of segmented businesses falls short of expectations. Among them, the study abroad business is not as weak as imagined, but the performance of the newly valued high-growth business unexpectedly underperformed expectations. In addition, the company's guidance for the next quarter is also weaker than market expectations.

Overall, this is another disappointing earnings report, but regarding the pre-market response of -15%, Dolphin believes that the reaction is somewhat exaggerated based on performance, as the second quarter had a mismatch period and a one-time impact from the departure of Dong Yuhui. Therefore, the 15% drop, aside from dissatisfaction with performance, may also reflect negative sentiment questioning the management's governance capabilities.

Specifically:

1) The study abroad training and consulting businesses grew by 21% and 31% respectively, with the company providing guidance of 20%+, and market expectations were not high due to the downward adjustment of guidance in the previous quarter.

2) Adult English grew by 35%, also performing well, slightly above the company's guidance of 30%+.

3) However, the problem arises with the new business, which has been viewed as a growth pillar since the transformation, showing only a 42.6% year-on-year growth in Q2. Both the company's guidance of 50% and market expectations of 50%+ were not met. The number of enrollments in non-subject education for Q2 was 994,000, which saw a significant increase compared to the previous quarter. However, considering the management's previous mention of the distortion in year-on-year growth due to time cycles, Dolphin believes that looking at the cumulative growth over two consecutive quarters, the growth rate in Q2 is also in a slowing trend.

4) The company's guidance for core teaching business revenue for Q3 2025 (year-on-year growth of 18-21%) is also lower than the expectations of major foreign banks (around 25% year-on-year growth). This undoubtedly exacerbates market concerns about the rapid slowdown in demand for new businesses and the growth pressure brought by improvements in industry supply.

5) In terms of profitability, due to the current mismatch period of investment output (new schools built in the second half of last year have not yet fully commenced operations) and the severance payment related to Dong Yuhui's departure, the current profits are under pressure, which the management also provided some warning about last quarter. As school utilization rates improve in the second half of the year, profit margins are expected to gradually recover.