New Oriental Company Report
New Oriental Education & Tech. Group Inc. is a provider of private educational services. The Company offers a range of educational programs, services and products consisting primarily of English and other foreign language training, test preparation courses for admissions and assessment tests in the United States, the People’s Republic of China and Commonwealth countries, primary and secondary school education, development and distribution of educational content, software and other technology, and online education. It provides educational services under its New Oriental brand.
New Oriental Business Model
New Oriental Education & Technology Group implements one of the most comprehensive range of educational services for all ages. The student base ranges from children as young as age 5 to adults (age 35+), providing gradual long term business growth as EDU expands its reach network.
New Oriental’s services include:
Foreign Language Training Test Preparation International Study Consulting Private School Education Online Education Content Development Distribution
China’s english-language teaching sector expects to become a $3.9 billion market in 2010 alone, yet English is only one aspect of the New Oriental Business Model. New Oriental teaches Japanese, Spanish, French, and other foreign languages based on consumer demand.
Test Preparation is popular as well since Chinese students often travel to the Americas to study law, medicine, science, etc. Tests like SAT, GMAT, ACT, and LSAT are some of the most popular courses. See the Test Preparation section of New Oriental’s English site for more available courses.
The chart below displays the business model timeline that is based on age. As you can see, certain educational services remain in high demand (foreign language training especially) regardless of age in China.
EDU Marketing Strategies - The Dream Tour
The Dream Tour, New Oriental’s Annual advertising tour in Q4, increased student enrollment to 314,000 students, up from 230,000 a year ago. The Tour gives prospective students the opportunity to talk with mentors, ask questions, and learn more about EDU’s educational offerings and benefits. It is by far EDU’s most successful advertising campaign, and provides a nice boost in customers on an annual basis.
Financials and Fundamentals
EDU decreased its long term debt position in Q4, reducing cash to $204k in cash holdings. New Oriential has $0 long-term debt, and $5k in short-term debt, which the cash position covers nicely.
Selling, general, and administrative expenses jumped 47.7% YOY due to The Dream Tour marketing campaign. New Oriental’s tour is a once-a-year expense, and won’t effect operating results until Q4 2008.
Its P/E ratio stands at 52.5, a hefty premium for a China growth stock. However, if you plan to open a long term position, you could acquire EDU slowly, and buy it on dips in the stock price.
The Price/Book equals 7.66, which is well below the 14.35 industry average. I’m sure you value investors appreciate this statistic.
Listen to the Q4 Conference Call
For more up-to-date information on New Oriental, listen to the EDU Q4 conference call. Ever since my Blackstone Group (BX) misplay, I require myself to listen to the most recent conference call before I invest in any public traded company.
Long Term Value in New Oriental
EDU fell 6% since July 28th to $47.10. I will pick 20 shares or so using a limit trade of $45, and slowly build my position.
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Disclosure: The author owns EDU.
EDU 1-yr chart: