Shares in New Oriental Education & Technology (EDU) have slipped just over 10% in the last two weeks since hitting a record high of USD91.86 a share on 13 September.
UOBKayHian puts the weakness in the shares of the China-based education and after-school tutoring group down to weak U.S market sentiment and also profit-taking after the shares rallied following its strong fourth quarter results. The broker views this as opportunity to buy prior to the company’s first quarter FY18 results due on 24 October. The broker says:
EDU will continue to dominate the AST market and is likely to post strong earnings growth on: a) resilient demand for K12 AST, b) its strong market position allowing it to gain market share as smaller competitors face stiff control from regulators, and c) gradual operating margin improvement on a higher utilisation rate and increase in effective utilisation of teachers under the dual-teachers model.
UOBKayHian expects the company to report a 13% to 16% year-on-year growth in net profit to USD160 million – USD165 million in the first quarter on the back of 19-20% year-on-year revenue growth. Management is guiding for revenue growth of 17-21% on the back of strong enrollment numbers.
The broker rates the stock a buy with a price target of USD99 a share, implying 15% upside from the current price of $86.22 a share. The stock is up 104.8% this year.