Market Analysis | New Oriental Education & Technology Group Inc. opens nearly 15% lower after earnings release, with increased investment in East Selection likely to pressure short-term profit margins

New Oriental-S opened nearly 15% lower after the earnings report, with overnight US stocks falling nearly 14%. As of the time of writing, it has dropped by 14.95% to HKD 60.3, with a turnover of HKD 278.358 million. In terms of news, New Oriental released its financial results for the third quarter of the 2024 fiscal year yesterday. The group achieved a net revenue of USD 1.207 billion during the period, a year-on-year increase of 60.1%; operating profit of USD 113 million, a year-on-year increase of 70.6%; net profit attributable to New Oriental shareholders of USD 87.167 million, a year-on-year increase of 6.8%; adjusted net profit attributable to shareholders of USD 105 million, lower than the market's previous expectation of USD 120 million; net profit margin of 8.7%, compared to 13% in the same period last year. CICC International pointed out that it is expected that the revenue in the fourth quarter will increase by 38% to USD 1.18 billion (management guidance of 28%-31%), and the operating profit margin may decrease by 3 percentage points year-on-year to 6%, mainly due to increased investment in Eastern Selection and the off-season of the education business, as well as investment in culture and tourism. After the earnings release, the stock price closed down by 14%, mainly affected by short-term pressure on profit margins, with the current price corresponding to a P/E ratio of 20 for the education business. The bank believes that the demand for education and the company's business performance remain stable, and expects a 30% increase in education revenue in the 2025 fiscal year, with continuous optimization of profit margins