Students are flocking to New Oriental Education & Technology
The numbers beat Street expectations, taking the stock to a lifetime high of $133. Is it too late for Fools to rush in?
Checking out the numbers
Revenue for the quarter surged to $137.4 million, up a staggering 59% from the year-ago quarter. Student enrollments went up by 11.9% to 489,100. Furthermore, students seem to be opting for smaller, more expensive classes, which help to create higher than average selling prices for New Oriental. Generating such high revenues on a 12% total enrollment increase is, indeed, impressive.
New Oriental recently has been focusing on controlling costs. Hence, despite a growing top line, the selling, general, and administrative cost has declined marginally this quarter. Also, the operating margin more than doubled from 4.2% to 8.7% in the year-ago quarter.
Recently this quarter, New Oriental disposed of two unprofitable subsidiaries, leading to a loss on sale of $1.54 million. But higher revenues helped the bottom line surge to $14.3 million, from $5.8 million in the same quarter last year. The EPS came in at $0.37 per American Depository Share as compared to $0.15 a year earlier. Excluding the asset sale loss, current EPS was higher at $0.49 per ADS.
Getting bigger
This China-based company has been expanding aggressively. As of May 31, it had 120 more facilities as compared to the prior year. It rolled out some new training programs for school students apart from VIP classes with a ratio of one teacher to a maximum five students. In total, it added a net 780 employees this quarter, most of which were teachers and not administrative staff. Clearly, this company is in a very strong growth phase.
Overall, New Oriental incurred a capital expenditure of $7.3 million by adding 31 new facilities in the latest quarter. It plans to open 80-100 new ones in the next fiscal year.
What really impresses me is the zero debt on the company’s books. This, combined with a strong total cash position of more than $500 million, gives it enough leeway to continue with its expansion plans comfortably.
Good industry position
This has been the first year when New Oriental’s enrollments exceeded 2 million. The company is way ahead of other China-based education providers in terms of attracting students. For example, China Distance Education
Positive enrollment growth in China could, however, give a company like Princeton Review, which has a strong hold in online test and language training areas and is already present in China, a reason to delve deeper into the growing market. We’ll see. New Oriental could already be too far ahead of the game for an outsider to catch up.
According to a Bank of America report, the private education market in China is expected to grow to $79.6 billion by 2012, a 45% rise from 2009. New Oriental’s VIP classes increased 37% in enrollments, with an accompanying 87% jump in cash revenue, which indicates a growing preference for personalized education in China. All this is good news for the company.
The Foolish bottom line
New Oriental has projected very strong revenue growth in the range of $255.8 million to $265.4 million for the next quarter. With positive enrollment and strong margins, it looks worthwhile to keep an eye on the stock.
