3QFY26 results: Solid top-line growth and margin expansion

3QFY26 results:Solid top-line growth andmargin expansion Target PriceUS$82.00(Previous TPUS$78.00)Up/Downside49.8%Current PriceUS$54.73 New Orientalreported 3QFY26 results: net revenue grew by 20% YoY toUS$1.42bn, 4% ahead ofBloombergconsensus estimate thanks to the solidgrowth ofnew educational business initiativesand currency tailwind;non-GAAPnetincomewas upby34% YoY to US$152mn, in line with the consensus,mainly due to the improved operationalefficiencyand profit contribution fromEast Buy. For 4QFY26E,managementguidednet revenue to increase by 15-18% YoY to US$1.43bn-1.47bn, which is ahead of the consensusestimate(US$1.43bn).Andmanagementisupbeat on the further margin improvement in4QFY26Eand FY27E, supported by enhanced utilization rate of learningcentresand cost control.Weraise ourFY26-28E non-GAAP OPforecastby 5-14% in view of the solid core educational businesses and improvedefficiency.We liftourSOTP-derived target price to US$82.0(previous: US$78.0). MaintainBUY on strong core educational business and solid margin expansion trend. China Internet Saiyi HE, CFA(852) 3916 1739hesaiyi@cmbi.com.hk Wentao LU,CFAluwentao@cmbi.com.hk Ye TAO, CFA(852) 3850 5226franktao@cmbi.com.hk Solid core educational business momentum.New educational businessinitiativesrevenue was up by 23% YoY in 3QFY26, mainly fuelled by theincreased ARPU, solid growth ofactive paid users of intelligent learningsystem(+19% YoY) and non-academic tutoring courseenrolment(+12%YoY). Domestic test prep revenue increased by 15% YoY in 3QFY26.Revenue from overseastest prepbusiness grew by 7% YoY in 3QFY26,thanks to the strong execution amid macro uncertainty. Looking ahead into4QFY26E, we expectrevenuefrom new educational initiatives/high-schooltutoring/domestic test prep foradults/overseas-related business toincreaseby 20%/17%/25%/1% YoY. Shuyin GUO(852) 3916 3716guoshuyin@cmbi.com.hk Stock Data Leveraging AI to improve internal operation and products.New Orientalcontinues to leverage AI to improve internalefficiencyand enhance learningexperience. The company also optimized its customer serviceapproachandrecently launched New Oriental Home, acomprehensive customer serviceplatform, which served over 330,000 families in 12 cities. The platformimprovedcustomer retention,enhanced customer lifetime value andoptimized operation costs. The campaign activation rates of the platformreached 10-15%, significantly higher than those of other e-commerceplatforms. Continuous margin expansion on enhanced utilization rate and costcontrol.Non-GAAP OPM rose by 2.3ppt YoY to 14.3% in 3QFY26,primarilyattributable to the prudent capacity expansion,enhanced operationalefficiencyand profit contribution from East Buy. Overall opex ratio declinedby 3.6ppt YoY in 3QFY26. Looking ahead,managementexpectsfurthermargin improvement in 4QFY26E thanks to the improvedutilization rate andoperatingefficiency,despite the one-off expenses related to theconsolidation of overseas test prep and consultingbusinesses. For FY27E,managementexpectsto expandthe company’slearning centrecapacitybyc.10%, with continuous improvement in the utilization rate. Source: FactSet Businessforecasts update and valuation Valuation OurSOTP-derived valuation of US$82per ADS comprises: 1) US$78.8for the educational and consulting business (96% of total valuation), based on25x FY26E PE, which isatapremiumtothe educationalsector average(22x) given NewOriental’s solid leadership in China’seducationalsector. 2) US$2.0for East Buy (2% of total valuation), based on11x FY26E PE, which ison parwiththee-commercesector average. 3) US$1.2for the Tourism and others business (2% of total valuation), based on10x FY26EPE,which is a discount to other OTA platforms (12x) given that its tourism businessremains at early development stage. Disclosures& Disclaimers Analyst CertificationThe research analyst who is primary responsible for the content of this research report, in whole or in part, certifies thatwith respect to the securities orissuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject securities or issuer; and (2)no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by that analyst in this report.Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The Hong Kong Securities and Futures Commission) (1) have dealtin or traded in the stock(s) covered in this research report within 30 calendar days prior to the date of issue of this report; (2) willdeal in or trade in the stock(s) covered in this research report 3 business days after the date of issue of this report; (3) serve as an officer of any of the HongKong listed companies covered in this report; and (4) have any financial interests in the Hong Kong listed companies coveredin this report. CMBIGM RatingsBUY : Stock with p