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New Oriental-S rose more than 4%, with an institution saying the market overreacted to Dong Yuhui's resignation, and the e-commerce business will only have limited impact on the company

AInvestSunday, Jul 28, 2024 9:30 pm ET
1min read

New Oriental Education & Culture Development Co., Ltd. - S (09901) opened more than 4%, as of the time of writing, up 4.64% to HK$57.5, with a turnover of HK$64.95 million.

On the news, Oriental Select announced that it would sell its subsidiaries to Mr. Dong Yuhui for RMB76.58 million. The statement said that with Mr. Dong leaving the group, the group would no longer be able to continue operating the target company. After the transaction, the group would continue to operate and expand its self-owned products and live-streaming e-commerce business under the "Oriental Select" brand.

China Merchants Securities published a research report saying that the decline in New Oriental's share price was an overreaction to the news of Mr. Dong's departure. The brokerage said that New Oriental's regulatory environment is stable, demand is robust, competition is moderate, and the company is the leader in the industry, with most of its businesses maintaining good growth. If the business of Oriental Select is excluded, the core education business of New Oriental is valued at US$78 per share; if the net cash of US$4.55 billion and a 30% enterprise discount factor are included, the valuation is US$97 per share.

SWS Research pointed out that New Oriental Education & Culture Development Co., Ltd. - S (09901) changed its personnel at its subsidiary Oriental Select, with the departure of top broadcaster Mr. Dong Yuhui. Since New Oriental owns 57.04% of Oriental Select, the contribution of Oriental Select to New Oriental's revenue in FY25 and FY26 would decrease by US$250 million and US$320 million respectively, and the drag on the e-commerce business would be limited. The brokerage believes that, in the context of continued high growth in education business and the acceleration of capacity expansion, the market will focus on the company's growth potential, so the pressure on the company's valuation from the cost and expense of capacity expansion will not be as significant.

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