D. S. Kim

D.S. Kim asked for a quantification of the non-recurring operating expenses in the fourth quarter, including the 10-year anniversary, National Games, and junket-related bad debt, and sought confirmation on whether National Games and Grand Prix spending were included in OpEx above the EBITDA line.

Answer

EVP and CFO Geoffrey Stuart Davis confirmed that the National Games and Grand Prix expenses were included in property margins. He quantified the additional bad debt at approximately $5 million for the quarter, expected to return to normal levels, and the anniversary-related spending at about $6 million.

D.S. Kim asked for a quantification of non-recurring operating expenses in the quarter, specifically for the 10-year anniversary, National Games, and junket-related bad debt, and confirmed their inclusion in OpEx.

Answer

EVP and CFO Geoffrey Stuart Davis confirmed that these expenses are included in property margins. He specified that the additional bad debt provision was approximately $5 million, expected to normalize, and the anniversary-related costs were about $6 million.

D.S. Kim inquired about New Oriental's shareholder return policies, specifically whether the current plan is based on projected net profit and payout ratio, or cash flows. He asked if the announced 100% payout (dividend + buyback) based on his GAAP EPS estimate is a going-forward expectation, or if the buyback is a one-off.

Answer

Stephen Yang, Executive President and CFO, clarified that the current $190 million dividend and $300 million share buyback program (totaling $490 million) represents over a 130% payout ratio based on last year's net profit, emphasizing that the buyback is not a one-time event. He committed to discussing with the board to approve new capital allocation programs next year, aiming to maintain a high payout ratio and yield based on the prior fiscal year's net profit.

DS Kim inquired about the company's shareholder return policies, specifically how the dividend and share repurchase program are determined (e.g., based on net profit, cash flow, or prior year's earnings), and whether the $300 million share buyback is a one-off event.

Answer

Executive President and CFO Stephen Yang explained that the recently announced $190 million dividend (50% of last year's net profit) and $300 million share buyback program result in a payout ratio over 130% when compared to last year's net profit. He clarified that the payout calculation is based on the previous fiscal year's net profit and confirmed the $300 million share buyback is not a one-time event, with plans to propose new capital allocation programs to the board annually to maintain a high payout ratio and yield.

DS Kim from JPMorgan Chase & Co. sought several clarifications, asking if the Q1 margin expansion guidance was for the group or core education, and if the cost control impact was for Q1 or the full year. He also questioned the implied downward revision of the core education growth outlook and asked about the decision-making process between dividends and buybacks.

Answer

Stephen Zhihui Yang, Executive President & CFO, confirmed the Q1 margin expansion guidance is for the whole group and the 100-150 bps cost control benefit is for the full year. He acknowledged the revised outlook, attributing it to a weaker forecast for the overseas business. Regarding capital return, he stated the mix between dividends and buybacks will be decided by the board after the final FY25 audit.

DS Kim from JPMorgan Chase & Co. sought clarification on several points: whether Q1 margin guidance was for the group or core business, the timeframe for cost control impacts, the implied core education growth in FY26, and the company's preference between dividends and buybacks.

Answer

Stephen Zhihui Yang, Executive President & CFO, confirmed the Q1 margin expansion guidance is for the entire group and the cost control impact is for the full year. He acknowledged the FY26 guidance is lower than previously thought, mainly due to a weaker outlook for the overseas business. He stated the board has not yet decided on the mix of dividends versus buybacks for the new capital return plan.

In a follow-up, D.S. Kim from JPMorgan sought clarification on whether the fiscal 2026 growth forecast of 25-30% for 'K-9 new businesses' was exclusively for K-9 or included other new business initiatives as well.

Answer

Executive Sisi Zhao confirmed that the 25-30% growth forecast encompasses all businesses within that category, with the primary components being non-academic tutoring and the learning pad business.

D. S. Kim of JPMorgan followed up on the full-year outlook, asking if the moderated revenue growth expectation would impact the target for operating margin expansion. He also requested more detail on the segment growth assumptions within the new guidance.

Answer

Zhihui Yang, Executive President and CFO, acknowledged margin pressure in the second half of the year from the slowing overseas business and new tourism ventures. However, he stated that for the full fiscal year, the company still expects margin expansion, driven by K-12 business strength, cost controls in the overseas segment, and an improving margin profile for the tourism business next year.

D.S. Kim from JPMorgan Chase & Co. sought clarification on the new business initiatives' growth figures and composition. In a follow-up, he asked for a more precise comparison of growth rates for the new businesses and high school segment between Q1 actuals and Q2 guidance to better understand the growth trajectory.

Answer

Executive Sisi Zhao clarified that while the two key new initiatives (non-academic tutoring and intelligent learning devices) grew over 55% in Q1, the overall segment growth was lower due to smaller categories. For Q2 guidance, she specified the overall new initiatives are expected to grow 45-46%, while the two key components will grow over 50%. She also confirmed that the high school business grew 20-21% in Q1, providing a direct comparison to its ~20% Q2 growth guidance.

D. S. Kim inquired about the learning devices segment, asking if it is profitable on a cash or accounting basis and what the strategy is to enhance profitability, such as monetizing value-added services on the growing user base.

Answer

Executive Zhuangzhuang Peng stated that the learning device business is currently loss-making, with major costs in R&D, selling expenses, and bill of materials. He emphasized the strategic importance of the business for reaching new customers and the company's focus on investing in product and content quality, such as the new lower-priced XBook. While the user base is highly engaged (80% weekly active rate), Peng noted there are no tangible plans for value-added services yet, as the priority remains on user experience.