First Beijing's $496 Million Bet: A Structural Conviction in a Regulated Education Market

The investment is a concentrated bet on a single, highly regulated company within a volatile sector. First Beijing Investment Ltd has made a decisive move, increasing its stake in New Oriental Education & Technology by during the third quarter, . This makes New Oriental the fund's second-largest holding, comprising 19.15% of its U.S. equity portfolio. For a fund with total assets under management of approximately , this is a significant concentration, representing nearly one-fifth of its publicly traded equity exposure.

The core question is whether this is a strategic conviction or tactical positioning. The scale of the bet suggests conviction. The fund's recent 13F filing shows a , indicating a period of strong performance. Yet, the stock itself has been under pressure, . This divergence points to a belief that the market is underpricing resilience in a battered sector, not future growth.

The fund's strategy, as a Hong Kong-based manager focused on Greater China and Asian markets, aligns with this bet. It has been an active buyer, adding to its position in New Oriental and other Chinese tech and logistics names. The move follows a period of regulatory turmoil for China's education sector, where New Oriental operates. The company's fundamentals have held up, with recent revenue growth and strong cash generation, but net income has been flat. The fund's large position signals a bet that the worst regulatory overhang is priced in, and that operational stability will eventually be rewarded. It is a high-conviction play on a specific company within a complex, regulated landscape.

The 13% Slide: Context and Catalysts

The stock's 13% decline over the past year is a story of missed expectations and shifting demand. While the company's top-line growth has held up, with , the market has punished the stock for a failure to convert that growth into bottom-line profit. The key catalyst was a sharp 13% intraday slide on October 28, 2025, following the release of that same Q1 FY26 earnings report. Despite the revenue gain, , a clear miss that triggered a sell-off. This event crystallized a longer-term trend of softening demand in a critical segment.

The underlying pressure is concentrated in the overseas segment, which has been a growth engine. In the third quarter of fiscal 2025, revenue from , respectively. While these figures show growth, they represent a significant deceleration from prior periods and are the weakest link in the company's portfolio. This softening is the primary reason the stock has underperformed the broader market, .

The decline is a classic case of a stock being priced for perfection. Investors are focused on the margin compression and slowing growth in consulting, which are more visible and immediate than the company's solid cash generation and balance sheet strength. The institutional investor who increased their stake last quarter, , is making a bet that the market is overreacting to these near-term headwinds. They see operational resilience and a strong cash position, but the stock's path has been set by the disappointment in the bottom line.

The Underlying Business: Diversification as a Structural Shield

The investment case for New Oriental is built on a hard-won operational transformation. The company's pivot from a single, heavily regulated business model to a diversified portfolio is the core structural shield against future policy or market shocks. In 2021, the company's revenue was dominated by K-9 Academic AST Services, . The subsequent regulatory crackdown forced a strategic retreat, but New Oriental's response was decisive. It didn't just cut losses; it rebuilt. The company systematically shifted resources toward educational products and services not related to K-9 academics, including test preparation, language training for adults, and educational materials.

This diversification is now the bedrock of its resilience. The business is no longer reliant on any single segment. As of its most recent fiscal year, five of EDU's businesses contribute over 10% of the revenue each but none of them contribute more than 25%. This balanced structure means that while one segment faces headwinds, others can continue to drive growth. The financial results for the first quarter of fiscal 2026 demonstrate this in action. Total revenue grew , a solid performance that was powered by specific high-growth areas. , while the company's new educational business initiatives, which include non-academic tutoring, . This is the operational proof point: the diversified model is not just a risk-mitigation exercise, but a genuine engine for expansion.

The bottom line is a company that has turned a crisis into a competitive advantage. Its diversified portfolio provides a stable foundation, while its focus on high-growth, non-regulated segments like adult test prep and new educational initiatives offers a clear path for future scaling. This operational discipline, forged in the fires of regulatory change, is the most compelling justification for the investment.

Financial Health and Valuation: A Resilient Balance Sheet at a Discount

The company's financial foundation is its strongest asset. Despite a challenging regulatory environment and a 13% stock decline over the past year, New Oriental maintains a fortress balance sheet. It holds , providing a substantial buffer against economic headwinds and any lingering policy uncertainty. This liquidity is a direct result of strong cash generation, . For a business in a capital-intensive sector, this level of dry powder offers significant strategic flexibility and resilience.

Valuation, however, tells a different story. The stock trades at a forward price-to-earnings ratio of , which is below its historical average and the sector median. On the surface, this appears reasonable. Yet a deeper analysis reveals a more compelling picture. . , . The market is pricing in a muted growth trajectory, as reflected in modest guidance, while overlooking the company's operational discipline and massive cash reserve.

The bottom line is a classic value trap waiting to be resolved. The stock's underperformance relative to the broader market is not driven by deteriorating fundamentals but by a lack of growth optimism. With a robust balance sheet providing a safety net and a valuation that suggests the market is pricing in failure rather than resilience, the setup offers a clear asymmetry. For patient investors, the current price represents a compelling entry point to acquire a financially sound business at a steep discount to its intrinsic worth.

Catalysts and Risks: Navigating the Regulatory and Economic Landscape

The investment thesis for New Oriental now hinges on its ability to validate a new growth model. The primary catalyst is the company's execution in its high-margin new segments, particularly non-academic tutoring and intelligent learning systems. These initiatives are no longer experimental; they are the core of the current business. In the first quarter of fiscal 2026, revenue from these new educational business initiatives grew . More specifically, , . This growth is critical because it must not only sustain the company's top-line expansion but also drive profitability, . The next earnings report, scheduled for January 28, 2026, will provide near-term visibility into the trajectory of these new business lines and whether the momentum is accelerating.

Yet, this forward-looking optimism exists within a regulatory shadow. The key risk is a potential crackdown on the remaining for-profit tutoring services, a vulnerability that has been mitigated but not eliminated. The landmark "double reduction" policy of mid-2021 banned all for-profit K9 academic tutoring, a major revenue source that caused the stock to plummet. While sentiment has softened and the company has pivoted successfully, the policy's core intent-to regulate capital in education-remains. The market has already seen a partial revival of the underground tutoring market, where services have transformed into smaller, private groups. Any renewed regulatory pressure on these non-academic or high school offerings could disrupt the growth engine that is now being built.

The bottom line is a tension between a validated new business model and an unresolved regulatory overhang. The company has demonstrated remarkable resilience, returning revenue to its 2020 peak within two years of the crisis. Its next challenge is to prove that this recovery is sustainable, not a cyclical rebound. The catalyst is clear: sustained, high-margin growth in non-academic and ed-tech. The risk is a regulatory reset that could re-shape the market it has just begun to dominate. The January earnings report will be the first concrete test of this thesis.