New Oriental Education & Technology: Better FY4Q16 Driven by Increase in Utilization; Aggressive Promotion in FY1Q17 Can Be Positive for Full Year 2017, but Not For FY1Q17; Maintain Buy
EDU will report FY4Q16 results on Wednesday, July 20th before the markets open
with an 8am EST conference call. Based on our proprietary data, we expect EDU to
report FY4Q16 results better than consensus driven by the increase in utilization of
both courses and attendees. For the bottom line, we are expecting better margins
as a result of less new school openings and higher tuition per student per course.
For FY1Q17, the company is offering low rate courses aggressively. While it may
pressure FY1Q17’s financial performance, it is an effective way of recruiting
students for the entire year. As we believe EDU’s fundamentals and outlook are
strong, we maintain our Buy rating. We are suspending our price target of $34.00
and will revisit the PT after earnings.