汇丰银行-new oriental education：buy：key take aways from ndr-20170608-hsbc

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1、8June2017NewOrientalEducationEQUITIESINTERNETBuy:KeytakeawaysfromNDRChinaWehostedanondealroadshowwithEDUinEuropeandtheMAINTAINBUYUS,meetingmorethan40investorsTARGETPRICE(USD)PREVIOUSTARGET(USD)Managementisupbeatonoverseasbusiness,andconfident100.0077.00EDUwi

2、llemergeasthekeybeneficiaryofpolicychangeSHAREPRICE(USD)UPSIDE/DOWNSIDEReiterateBuywithnewtargetpriceofUSD100(wasUSD77)82.66+21.0%(asof07Jun2017)Revampinoverseasbusiness.EDU’soverseastestprepandconsulting,whichrepresents31%ofitstotalrevenue,grew15%y-o-yin3QFY17(e

3、ndedFebruaryMARKETDATAMarketcap(USDm)13,017Freefloat100%2017)–muchlowerthanEDU’soverallrevenuegrowthof33%y-o-y.Thesub-Marketcap(USDm)13,017BBGEDUUSoptimalperformanceinthisbusinesssegmentismainlyduetoslowerindustrygrowth3mADTV(USDm)145RICEDU.Nandpotentialmarketshar

4、elosstosmallerplayers.EDUisdeterminedtorevamptheFINANCIALSANDRATIOS(USD)overseasbusinessthroughstandardizingitsproductofferingsandsignificantlyYearto05/2016a05/2017e05/2018e05/2019eimprovingitsservicelevel.InFY18,theoverseasbusinesswillbeoneoftheKPIsforHSBCEPS1.54

5、1.862.653.66HSBCEPS(prev)--2.573.54localschoolheads.InvestorshaveassignedalowvaluationtoEDU’slegacyChange(%)--3.13.4businessduetoitslowergrowthprofileandnegativemediacoverage,whichweConsensusEPS1.421.852.383.13PE(x)53.844.331.222.6believerepresentsafurtherbuyingop

6、portunity.Dividendyield(%)0.00.00.00.0EV/EBITDA(x)45.132.420.913.9CentrallymanagingK12business.TherolloutoftheO2Omodel,whichdigitalizesROE(%)18.419.021.924.0andstandardizesthecurriculumandteachingmaterials,andcentralized52-WEEKPRICE(USD)managementarekeydriversofsu

7、ccessinEDU’sK12after-schooltutoringbusiness.EDUwillcontinuetobenefitfromthetailwindofO2Orollout–from50%oflearning110.00centerpenetrationcurrentlyto80-90%bytheendofthisyear.Thegroupisactively70.00evaluatingandoptimizingtheallocationofitsmanagerialresources.Localsch

8、ool30.00headswhocannotembracethechange,i.e.O2Oandhigherservicinglevel,willbe06/1612/1606/17Targetprice:100.00High:82.66Low:38.46Current:82.66allocatedto