Revenue growth and profit decline, performance is mediocre, New Oriental currently lacks investment value

Education company New Oriental announces first quarter results, with revenue rising but profit slightly declining, overall performance is only stable

Key Points:

• First quarter revenue reached USD 1.52 billion
• The company estimates full-year revenue could reach up to USD 5.4 billion

Liu Zhiheng

Mainland education leader New Oriental Education Technology Group Limited (9901.HK, EDU.US) has just announced its first quarter results for the fiscal year 2026, with revenue for the period ending in August rising 6.1% year-on-year to USD 1.52 billion, and operating profit increasing 6% to USD 310 million.

Among various businesses, revenue from overseas exam preparation and overseas consulting services grew by 1% and 2% year-on-year, respectively; revenue from domestic exam preparation for adults and university students increased by 14.4%, while new education business recorded a year-on-year increase of 15.3%.

Although revenue exceeded the earlier expected upper limit of USD 1.507 billion, net profit slightly declined by 1.9% to USD 240 million.

Profit Decline Causes Stock Price Plunge

Due to the profit decline, New Oriental's stock price listed in the U.S. plummeted over 9% at one point on the same day, later narrowing the decline to close at USD 58.56, down 3.4%. On Thursday, when the Hong Kong market opened, New Oriental's shares listed in Hong Kong also fell, closing down 2.23% to HKD 43.72.

In the past six months, the company's stock price in Hong Kong has risen 22% from its low, and compared to the approximately HKD 50 per share level before the announcement of the "Double Reduction Policy" in 2021, the stock price is close to returning to pre-"Double Reduction" levels. Additionally, revenue for the fiscal year 2025 has reached USD 4.9 billion, surpassing the USD 4.28 billion of fiscal year 2021 (pre-"Double Reduction"), demonstrating the success of New Oriental's structural transformation in recent years and showcasing Yu Minhong's extraordinary ability to cope with adversity, pulling the company back from the brink of collapse.

However, after a wave of performance recovery, New Oriental's business has recently begun to hit a bottleneck, and it seems that significant growth is difficult, appearing to only be able to move forward slowly.

One reason is believed to be the protectionist policies initiated by Trump after he took office as U.S. President at the beginning of the year, targeting overseas immigrants and foreign students, and proposing many restrictions that have impacted New Oriental's related businesses.

In the fourth quarter of the last fiscal year, New Oriental's revenue from overseas exam preparation services grew by 14.6% year-on-year, but in the first quarter of this fiscal year, it was only 1%; the growth rate of revenue from overseas consulting services also fell from 8.2% year-on-year in the fourth quarter of the last fiscal year to 2% in the first quarter of this fiscal year.

Cost Control Focus with Limited Revenue Growth

The company's Chief Financial Officer Yang Zhihui also acknowledged in the latest financial report: "Despite the ongoing challenges brought by the slowdown in overseas business, we still achieved a year-on-year improvement in Non-GAAP operating profit margin, thanks to our continuous efforts in cost optimization and operational efficiency enhancement."

It is clear that the ongoing slowdown in overseas business poses challenges; on the other hand, the company is optimizing costs through efficiency improvements. He continued, "We will continue to maintain a high level of execution and will fully expand cost control and efficiency enhancement measures across all businesses for the remainder of this fiscal year In other words, the company mainly relies on cost-cutting to reduce expenses this fiscal year, rather than supporting profits through business growth.

In fact, New Oriental also expects that the revenue for the second quarter of this fiscal year will be between USD 1.132 billion and USD 1.163 billion, an increase of 9% to 12% year-on-year. The company also reaffirmed its previous forecast for the full-year revenue, which is expected to be between USD 5.145 billion and USD 5.39 billion, representing a year-on-year increase of 5% to 10%.

According to the revenue forecast provided by the company, the full-year revenue growth is limited, at most only 10%. What is most concerning is that even if revenue increases, it does not mean that profits can grow in tandem, as seen in the first quarter, where revenue increased while profits declined, making it difficult to ensure that the full-year situation will be the same.

The Impact of the U.S. Lingers

New Oriental's growth point largely depends on the performance of its new education business, but the recent growth rate has slowed from 32% in the fourth quarter of the previous fiscal year to 15.3% in this fiscal year, which seems to be temporarily disappointing. As for the situation in the U.S., it is still affected to some extent by the disputes and trade wars between China and the U.S. Even though relations have recently eased and the leaders of both countries are willing to meet, Trump's unpredictability and flip-flopping continue to create instability for New Oriental's business.

Yang Zhihui stated in a conference call earlier this year that New Oriental expects a 5% to 10% growth in revenue from its overseas exam preparation business this fiscal year; meanwhile, the revenue from its study abroad consulting business is expected to remain flat for the year, significantly slowing from previous double-digit growth. It is clear from Yang Zhihui's forecast that these two businesses are unlikely to achieve ideal results this fiscal year.

For the time being, it seems that New Oriental will have difficulty finding a breakthrough point in the short term, and this fiscal year is expected to be stable. The current stock price is at HKD 50, extending a price-to-earnings ratio of 25 times, similar to China Education Holdings (0839.HK), which is not particularly attractive, with an average value proposition