1. NYSE: EDU
Analyst: Weifeng Liang

2. General Information
Sector: Services
Current Price: $47.97(As of Jan 25th)
Market Cap: 7.55 B
EPS: $1.43
52 Week High: $ 53.38
52 Week Low: $ 28.43
Language Training
and Test Preparation
Courses
Online Education
Primary and
Secondary Schools
Educational
Contents
K-12 After-School
Tutoring Courses
Other Services
84%
3%
2% 11%
% of Revenue in FY 2016
Language training &
test preparation
K-12 & online
education
Primary &
secondary
education
Books & Others

3. Investment Thesis
Downward
Momentum
Resulted from
Recent
Negative News
Is Creating a
Better Buy-in
Opportunity
China’s
Studying
Abroad
Trend
The New
Blue
Ocean:
K-12
Tutoring
Recommendation: Strong Buy
Target Price: $66
MOS: 27.32%

4. Investment Thesis 1

5. Downward Momentum Is Creating a Better Buy-in Opportunity

6. Investment Thesis 2

7. 340
400 414
460
524
2011 2012 2013 2014 2015
Numbers of Outbound Students(in thousands)
Data Source: Chinese Ministry of Education
China’s Studying Abroad Trend
19.32
17.63
3.58
11.1
13.9
0
5
10
15
20
25
2011 2012 2013 2014 2015
Growth Rate(%) of Chinese Students Studying Abroad

8. Investment Thesis 3

9. K-12 Market
Scale
Growth Rate
Unit: In CNY100
Millions
The New Blue Ocean: K-12 After-school Tutoring

10. 28% 29% 29% 30% 30% 30% 29% 27% 25% 22% 21%
26% 28% 30% 31% 33% 35% 37% 39% 42% 45%
48%
32% 30% 27% 27% 25% 24% 23% 23% 23% 23%
2%
13% 13% 12% 12% 11% 11% 10% 10% 10% 10% 9%
2010 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E
Market Share Among the Education Industry
Test Preparation After-school Tutoring Working Purpoes General Aptitude
Data Source: NBS, Frost & Sullivan, Morgan Stanley Research

11. Luxembourg
Switzerland
Netherlands
UK
Sweden
USA
France
Finland
Austria
Germany
Belgium
Denmark
Japan
China
Australia
Italy
Spain
Korea
Czech
Brazil
Average
% of K-12 Families Education Spending per Capita GDP
Data Source: www.chyxx.com

12. 2% 1% 1%
2%
94%
Market Share of China’s K-12 Industry in 2013
New Oriental
Xueda Education Group
TAL Education Group
4th to 10th
Others
Data Source: www.chyxx.com

13. DCF Analysis

14. DCF Results
Current Price: $47.97
Target Price: $66
MOS: 27.32%
Assumption:
Revenue Growth Rate: 15%
Constant Growth rate: 3.5%
Discount Rate: 8%
13.00% 14.00% 15.00% 16.00% 17.00%
9.00% -9.02% 0.06% 7.75% 14.34% 21.36%
8.50% 4.06% 11.17% 17.29% 23.86% 29.46%
8.00% 14.34% 21.36% 27.32% 32.44% 37.70%
7.50% 25.05% 30.48% 36.04% 41.50% 45.49%
7.00% 35.18% 40.78% 45.49% 49.51% 53.43%
MOS Sensitivity Analysis
Growth Rate
WACC

15. Relative Valuation

16. Key Ratios Comparison
P/E
FY2016
P/B
FY2016
ROE
FY2016
ROA
FY2016
Finl Lev
FY2016
Revenue
FY2016
(in million)
Profit
Margin
FY2016
New Oriental 29.87 4.71 16.95% 10.33% 1.64 $1478.35 15.05%
Industry Average 49.47 5.95 13.29% 5.77% 3.03 $733.21 4.84%
0
10
20
30
40
50
60
P/E P/B Finl Lev
New Oriental Industry Average
0.00%
5.00%
10.00%
15.00%
20.00%
ROE ROA Profit Margin
New Oriental Industry Average

17. Regression Analysis
P/B P/E
Log
(Revenue)
ROA Beta
New Oriental 6.63 24.89 3.17 10.33 0.85
Industry Average 5.86 31.26 2.66 8.83 0.87
0
10
20
30
40
P/B P/E Log(Revenue) ROA Beta
New Oriental Industry Average

18. Precedent Transactions
Scenario Median Multiple Implied Price Margin of Safety
Price/Free Cash Flow 27.43112719 79.01483228 39%
EV/EBITDA 15.9297514 31.15514573 -54%
Price/Sales 2.851527929 26.77580723 -79%
Median Implied Price 31.15514573 -54%

19. Valuation Spread
Margin of Safety Number of Valuations
10% > MOS 8
20% > MOS > 10% 4
30% > MOS > 20% 7
MOS > 30% 12
Total 31

20. Potential Risk
u New Oriental is facing a class action lawsuit and
being suspected of engaging in college
application fraud.
u New Oriental maybe seriously impacted if colleges
and universities rely less on assessment tests.
u New Oriental may be adversely affected if it can
not retain qualified teachers

21. Conclusion
1. Recent Downward Momentum is Creating
a Better Buy-in Opportunity
2. China’s Studying Abroad Trend
3. The New Blue Ocean: K-12 Tutoring
I recommend a strong buy of New
Oriental with a target price of $66 and a
margin of safety of 27.32%