New Oriental Education & Technology Group Inc. - ADR

Strong revenue growth but margin pressure from investment (FY2024 Q4 results) - Net revenue grew +32.1% YoY (topline growth described as “healthy” recovery across key education lines). - Operating margin: 0.9%; Non-GAAP operating margin: 3.2% (both down vs prior year per management tone). - Key cost drivers YoY: operating costs/expenses +38.6% to $1,126.2m; cost of revenue +38.5% to $542.4m; SG&A and G&A also rose sharply. - Negative/one-off/recurring mix (per management explanation): margin decline attributed mainly to (1) accelerated learning center capacity expansion, (2) new tourism business investment, (3) additional staff/management incentives in Q4, and (4) East Buy investments + certain costs related to Time with Yuhui (management implied some are one-time or front-loaded).

Margin outlook: improvement expected in Q1 2025, excluding East Buy; “education profitability” should normalize - Management expects OP margin expansion of ~200 bps YoY in the first quarter of FY2025 for the company excluding East Buy. - They believe the Q1 seasonality helps (Q1 is described as peak season for educational business). - For the rest of FY2025 (Q2–Q4): management did not give specific bps targets, but stated confidence in full-year margin expansion for the education business, driven by operating leverage (utilization of expanded centers/hiring translating into revenue) and strong demand.

Capacity expansion plan (growth without necessarily “new city saturation”) - They plan to increase capacity by ~20%–25% in FY2025. - Most new openings are planned in existing cities (not a broad “new geography” push), focusing on cities with better topline and margin performance. - Management stressed the objective is a balance of topline growth + margin expansion, and expects revenue to cover incremental classroom rental/cost as utilization improves. - A specific enrollment vs capacity mismatch was discussed: learning centers expanded ~+42% YoY while non-academic tutoring enrollment grew ~+39% YoY—management said this is partly timing (student enrollment windows and rollout timing) and expected it to “bear fruit” into Q1.