New Oriental Education & Technology Group - Earnings Call - Q4 2015
July 21, 2015
Transcript
Speaker 0
Ladies and gentlemen, good evening and thank you for standing by for New Oriental's Fourth Fiscal Quarter and Fiscal Year twenty fifteen Earnings Conference Call. At this time, all participants are in a listen only mode. After management's prepared remarks, there will be a question and answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time.
I would now like to turn the call over to your host for today's conference, Ms. Cici Zhao, New Oriental's Investor Relations Director. Ms. Zhao, please proceed.
Speaker 1
Thank you. Hello, everyone, and welcome to New Oriental's fourth quarter and fiscal year twenty fifteen earnings conference call. Our financial results for the period were released earlier today and are available on the company's website as well as on Newswire services. Today, you will hear from Stephen Yang, New Oriental's Chief Financial Officer. After his prepared remarks, Stephen will be available to answer your questions.
Before we continue, please note that the discussion today will contain forward looking statements made under the Safe Harbor provisions of The U. S. Private Securities Litigation Reform Act of 1995. Forward looking statements involve inherent risks and uncertainties. As such, our results may be materially different from the views expressed today.
A number of potential risks and uncertainties are outlined in our public filings with the SEC. New does not undertake any obligation to update any forward looking statements except as required under applicable law. As a reminder, this conference is being recorded. In addition, webcast of this conference call will be available on New Oriental's Investor Relations website at investor.neworiental.org. I will now turn the call over to Stephen.
Stephen, please.
Speaker 2
Thank you, C. C. Hello, everyone, and thank you for joining us. I'm pleased to be able to provide an overview on both the fourth quarter and full fiscal year 2015, which we ended on a quite positive note. We can conclude the final quarter of the fiscal year with a continued steady recovery in both top line growth as well as student enrollments.
We believe the highlights of strength of the business as well as our success in driving forward the growth strategy we launched in early fiscal year twenty fifteen. Introduced in the first quarter of this year, our optimized market strategy is allowing us to focus on maintaining a balance between top line and bottom line growth as well as building out our onlineoffline integrated educational ecosystem. Our decision has proven right and our investments are beginning to pay off. I'd like to sum up our key achievements in fiscal year twenty fifteen by setting three key areas. First, we made good progress expanding our footprint.
We successfully further penetrated our existing market where we see the greatest growth potential to drive our margin. We added learning centers and expanded others, increasing our office in cities with the most potential. Second, we had a very good success with adding to and upgrading our major products, which then in turn had a positive impact on revenue growth. As an example, with respect to K-twelve all subjects after school tutoring business, we continue to upgrade this and it has become the key revenue driver. It achieved revenue growth about 15% for the fiscal year also had a significant enrollment increase.
For further detail note that our U Can program, which is part of the business achieved more than 22% revenue growth for the full fiscal year. This was achieved despite the negative impact from the uncertainty of the Doukou reform at the beginning of fiscal year twenty fifteen. Third, we made great strides in following our integrated ecosystem and pushing forward into the online space. We're making a lot of progress in developing an online presence and one that will be well integrated with our offline offerings. We believe our offlineonline integrated program is more advanced than anything else that's being offered in the marketplace as it truly addresses the needs of both students and teachers.
This will surely further set us apart from our peers going forward. Among all our offerings in this area, our new POP Kids English program was shining star during the fiscal year. Since its launch in the second quarter, we have registered two consecutive quarters of positive revenue growth in student enrollments have significantly taken up. Judging by the very positive feedback from students in the market, we expect the product to achieve double digit revenue growth in fiscal year twenty sixteen. Also, the other business line of O2O system, U Can Visible Progress Teaching System, expands reach to more than 40 cities by the end of this year.
With a superior O2O integrated ecosystem, we'll be more able to increase customer stickiness, improve our present power and eventually we'll create new revenue streams through the provision of value added learning services. So as you can see, what a busy year and although we did face challenges, particularly at the start of the fiscal year, we made great progress pushing forward strategy. Also, I want to take a minute to address our efforts to enhance shareholders' value during fiscal year twenty fifteen. As we reported, announced in the third quarter, we completed the share repurchase repurchase program in March 2015. In an eight month period, we repurchased nearly 3,000,000 ADS for aggregate consideration of $59,400,000 Further to this, as you will have seen in today's press release, our Board of Directors has approved a special cash dividend of $0.40 per ADS to be paid on 10/07/2015, which will be another $63,000,000 capital return to shareholders, funded by the surplus cash on the company's balance sheet.
We're pleased that even while investing for long term growth in both 2015 and 2016, we're able to deliver direct value back to our shareholders via buybacks and dividends. Now let me turn to a short overview for the fourth quarter revenue results. Revenue was up by 14.4% year over year to $328,800,000 and was mainly driven by the enrollment recovery. Total enrollments for the fourth quarter increased almost 35 year over year. As we said in the previous call, the Chinese New Year holiday occurred later in Europe in 2015, delaying enrollment for spring class and resulting a shift from third quarter to fourth quarter.
And also, students choose to enroll in the summer class earlier than before, resulting a shift from the 2016 to the 2015. Our key revenue driver, the K-twelve all subjects after school tutoring business, grew almost 21% year over year to about 164,000,000 representing 48% of our revenues for the quarter. The U Can business saw increase of about 27% in gross revenue and significant 65% growth in enrollment. As discussed earlier, we start new customer loyalty program to encourage repeat business and for the fourth quarter this resulted deferred revenue of about $5,300,000 which is set to be recognized within two years without any additional expenses associated with such revenue. So if including this, our top line growth would have been 16.2%.
As mentioned, the dampening effect on revenue will just be temporary. Starting April 2015, the company decided to narrow the scope of the program to include only K-twelve business for selected cities. That said, we expect the definite impact to reduce starting in the 2016. With respect to the key factors of pricing, on an apple to apple basis, which is GAAP revenue divided by total teaching hours, ASPs increased by about 10%. Breaking down, our hourly basis plan ASP for U Can increased 5% to 10% and ASP for overseas test prep program increased about 15%.
For our POP Kids, we're focusing on getting the market share and capturing potential growth right now. So we continue to strategy of not increase ASP much until we gain further penetration into the market. Now let me walk you through our performance across individual business lines. As mentioned, our K-twelve of subjects after school tutoring business continued to have strong momentum. We recorded gross revenue growth of 21% year over year for the fourth quarter and 15% for the fiscal year.
With the improved offerings of POP Kids and our advanced teaching methods, we expect K-twelve to continue to drive our business growth. Breaking it down a bit further, U Can middlehigh school all subjects after school tutoring business achieved a gross revenue increase of approximately 27% year over year for the quarter and 22% for the fiscal year. Student enrollment growth significantly, around 65% year over year for the quarter and 29% year over year for the fiscal year. And for the fourth quarter, our new POP Kids program business continued steady recovery, with gross revenue growth of 6% and enrollment growth as much as 48% year over year. This is an outstanding result as we have achieved two consecutive quarters of positive revenue growth following by the revamp of this program.
Our overseas test prep and consulting business achieved growth of more than 14% year over year for the fourth quarter and 11% for the fiscal year. Finally, revenue growth of VIP personalized class business increased significantly by 31% year over year in the fourth quarter and increased 19% for the fiscal year. Now let me get to some more specifics on progress we made in the fourth quarter and fiscal year with our optimized market strategy. Let me first touch on our core offline business. In the fourth quarter, we fully expanded in existing market, adding a net of two learning centers.
For fiscal year twenty fifteen as a whole, we added a net of 21 learning centers, bringing our total learning centers to seven twenty four and expand certain existing learning centers by adding a total over 11,000 square meters of additional classroom area. As for our online business, we invest roughly $12,000,000 in the fourth quarter and 39,000,000 for the fiscal year to continue to drive this forward. There are some many untapped opportunities in the online education market in China and we are preparing ourselves to provide students and teachers with the best and most interactive resources and truly enhance our self value to the for the customers. We believe no one in the China education service market is better positioned than us to capture this market growth. Before I go into details of progress we made during the quarter and the year, just to briefly recap all three levels of our online platform.
The first level, also the core of our online system, is an O2O2 way interactive education system across all of our business lines. The second level is our pure online learning platform coollearn.com and supplementary online education products and the NewRental brand. The third level of our ecosystem is for NewRental to take minority shareholdings companies that complement our own online education offerings. Let's start with O2O2A interactive education system, which we rolled out and upgraded in the first quarter of fiscal year across all major product lines, aiming to expand New Oriental's traditional offline classroom teaching offerings to online education services. We launched the U Can Visible Progress teaching system into over 30 cities in September 2014 and reached more than 40 cities by the end of the fiscal year twenty sixteen.
This is a unique online platform that helps students to study after class in a measurable and enjoyable manner. It's one of the key offerings that set us apart from our peers in the market. As said earlier, as we roll out the newly revamped POP Kids English program, Shuangyou, our POP Kids program reported 6% revenue growth and drastically increased 48 enrollments in the fourth quarter. The new program is designed to provide the most interactive learning resources and creates more personalized learning experience based on students' own study records and interests. 38 cities in China are using these new programs and more to come because pushing out improved offerings is our focus in 2016.
We have full confidence that this is advanced pop kids offerings with greater new rental brand awareness in highly competitive education service market in China and help us capture extra growth. The O2O2A interactive education system for the domestic test drive program was being used in six cities by the end of this quarter and we are testing the O2O Overseas Test Prep program in seven cities so far. For second level online education ecosystem, we have seen continued growth in koolearn.com and other supplementary online education products. In the fourth quarter, koolearn.com generated net revenue of $9,100,000 representing a 26% increase year over year. The number of registered users increased more than 67% year over year and the number of paid users increased over 138% year over year.
The number of cumulative registered users has reached more than 10,700,000. KudoCM, our own live broadcast open platform for both new rental and third party teachers achieved about 515,900 registrations in the fourth quarter. Donut, a series of game based mobile learning applications for children, recorded over 22,500,000 downloads in the fourth quarter, up from 7,000,000 in the third quarter. LUTs, an English language vocabulary training application we launched in late twenty fourteen for mobile phones and tablets app, recorded over 2,400,000 users by end of the fourth quarter. This is more than double from the results we had for the third quarter.
Turning to third quarter, the third level of our online education ecosystem. We have invest in select online education companies with minority stake and we're constantly looking for new opportunities that will not only complete our own offerings, but also support our goal to achieve outflow integration. In December 2014, we made investments in Golden Finance, the largest finance training school in China, providing both offlineonline test prep course including CFA, ACCA, CMA and CPA as well as some corporate training programs. As of the end of the fourth quarter, the school was opening in fourth place. Later in March 2015, we made investments in Roborobo, the largest robot making education company in China targeting young learners aged from four to 15.
By the end of the fourth quarter, it had about 50 self owned learning centers and over 70 franchised learning centers nine cities in China. Together with our previous investments in kouy100.com, ai07.com, Terina and zheisheng.com, we're in process of building our ultra integrated educational ecosystem and create more opportunities to partner with other new online education companies to enhance our product offerings and strengthen our leading position in China's private education market. Now, let's quick look at some of the key financial metrics for the fourth quarter. Operating costs and expenses for the quarter were 306,300,000 a 17.7% increase year over year. Non GAAP operating costs and expenses for the quarter, which exclude share based compensation expenses, were $301,100,000 a 17.4% increase year over year.
Cost of revenue increased by 20.8% year over year to $137,500,000 primarily due to the increased teachers' compensation for more teaching hours and product R and D costs of our pure online education platform koolearn.com. Selling and marketing expense increased by 3.3% year over year to $53,300,000 primarily due to the increase in selling and marketing staff compensation. General and administrative expense for the quarter increased by 21.7% year over year to US115.4 dollars non GAAP general and administrative expense which excludes share based compensation expenses, were $110,400,000 a 21.4% increase year over year, primarily due to increase in R and D expenses and HR expenses related to the development of our onlineoffline integrated ecosystem. Total share based compensation expenses, which were allocated to the related operating cost expenses increased by 30.1% to $5,200,000 in the 2015. Income from operations for the quarter decreased by $26,900,000 to $22,500,000 Income from operations would have been about $27,800,000 if not for the accounting effect for the company's new customer loyalty programs.
Non GAAP operating income decreased by 20.2% to $27,700,000 for the quarter. Operating margin for the quarter was 6.8% compared to 10.7% in the same period of the prior fiscal year. Non GAAP operating margin, which excludes share based compensation expenses for the quarter was 8.4% compared to 12.1% in the same period of prior year. Net income attributable to New Oriental for the quarter was $35,200,000 representing 17.9% decrease from the same period of prior year. Capital expenditures for the quarter were $11,000,000 which were primarily attributed to opening 26 new learning centers and renovations at existing learning centers.
Turning to the balance sheet. Deferred revenue balance was cash collected from the registered students for courses and recognized proportionally as revenue after the instructions are delivered, at the end of fiscal year twenty fifteen was $501,200,000 an increase of 31.6% as compared to $380,800,000 at the end of the fiscal year twenty fourteen. I'd like to talk just a bit about our overall outlook for fiscal year twenty sixteen. During fiscal year twenty sixteen, we will continue to implement optimized market strategy to further build on the improved foundation we have laid over the past year. As part of this, we will have four key areas of focus.
We will continue to expand our offline business. We aim to enter three to four new cities, where we identify the most growth potential and open 30 to 40 dual learning centers for our K-twelve after school tutoring business in existing cities that are driving both revenue growth expansion. We will continue to invest heavily as we did in fiscal year twenty fifteen. Fiscal year twenty sixteen will also be an investment year as we work to fully build out our integrated offlineonline ecosystem. We will continue to invest spending about $50,000,000 in the fiscal year.
We consider this investment essential to help you strengthen our market dominance and we are fully confident that all of these efforts will bring higher growth and sustainable profitability in the long term. We'll focus on additional quality improvements for all of our offerings. We'll hire better and more senior management, teachers, R and D and IT staff for our offline business, upgrade to content and be innovative with our products. This is to ensure we have the premium offering in the market. To achieve this, they expect the total compensation for school health business line managers and key R and D and IT managers will increase by more than 30% year over year.
We will drive further operating efficiencies. We remain keen on improving operational efficiency and cost control across the organization, so we'll continue to focus on this. With this strategy as our guide for the year, we expect to achieve double digit annual revenue growth. At the same time, the strategic investments will continue to temporarily step on our overall operating margin and we believe our fiscal year twenty sixteen operating margin will be slightly lower than in fiscal year twenty fifteen. This means that we would like to highlight that our operating margin for our offline business has been experiencing steady recovery over the past three quarters.
With respect to the 2016 specifically, we anticipate total net revenue to be in the range of $441,300,000 to $457,000,000 representing year over year growth in the range of 12% to 16%. About $5,300,000 revenue will be deferred resulting from the company's customer loyalty programs. If not considering that, the project revenue growth rates is expected to be in the range of 13% to 17%. All in, we're excited about the future and believe we are taking all the right steps and are on the right track to achieve sustainable profitability over the long term and to consistently to create value for our shareholders. This forecast reflects New Oriental's current preliminary view, which is subject to change.
At this point, we will take your questions. Operator, please begin.
Speaker 0
Thank you, sir. The question and answer session for this conference call will start We have the first question from the line of Vivien Hao from Deutsche Bank. Please ask your question.
Speaker 3
Hi management. This is Aileen Deng asking a question on behalf of Vivint Hao. We have a question regarding the PUBKIS. We note that the segment enrollment growth was quite encouraging. So we would like to get management's explanation of the forward looking trend for fiscal year twenty sixteen.
Speaker 2
Okay. The student enrollment for top kids is quite strong. And I think it's mainly driven by the our good O2O product. So the students will give us very positive feedback for our product. So, we are taking the market share now.
And going forward, I think for the next whole year, I would like to guide the student enrollments for the POP Kids about the 10% to 15%. With the price increase to five to 8%, I think the revenue of POP Kids will grow by 15% to 20% next year.
Speaker 4
Does that answer your question?
Speaker 3
Yes. Thank you. I'll get back to the queue for my next question. Thanks.
Speaker 2
Okay. Thank you.
Speaker 0
We have the next question from the line of Cynthia Ming from Jefferies. Please ask your question.
Speaker 5
Thank you, management. We have one question. Is the lower gross margin a result of lower pricing or more it's because of the increasing mix shift towards the K-twelve business?
Speaker 2
I think the gross margin was decreased by 2% this quarter. And the first reason is that we spent more teaching hours in this quarter. That means the VIP class contributes the percentage of the total revenue more than our like small and big classes. This is the first reason. The second reason is for pure online company koolearn.com, they spent million to RMB3 million more than we expect before this quarter.
So that they are the two reasons that drag the GP margin. But going forward, I think the gross margin will keep flat or a little bit lower in next fiscal year. I think the positive reason for the the positive thing for the gross margin is to for our rental expenses, it's only increased by like the 10%. It will be lower than the revenue growth. And even though we capped VIP class by 30% of the total revenue and the fact is the class the revenue VIP VIP class contributed more and more.
So the next year, I think teaching hours will be a little bit more than this year. So I think the gross margin will be flat or a little bit lower, slightly lower.
Speaker 5
Okay. Thank you.
Speaker 3
Does that
Speaker 4
answer your question?
Speaker 5
Okay. Yeah. Thank you.
Speaker 0
We have the next question from the line of Alice Yang from Macquarie. Please ask your question.
Speaker 3
Hi, this is Steven. Thanks for taking my question. This is Alice from Macquarie. I have a question about your 2Q guidance. As the cash enrollment grow around 35% year on year in this quarter, so I assume most of them will be realized and accounted as revenue in the next quarter given on average three months cost spend.
I don't know whether it's right. If it's right, then why you guided relatively speaking a conservative 2Q revenue growth is only 12% to 16%. Is that the ASP sort of reason? Thanks.
Speaker 2
Okay. Alex, the student enrollment quite strong, which has increased by 34% this quarter. I think it's mainly due to the timing difference, which has two reasons. The first one is this the Chinese New Year for this year is late. So that's why the student enrollment growth for the last quarter was flat or zero growth.
And the other one is that more and more K-twelve business students choose to enroll summer class earlier than before. So, even with this time difference, student enrollment is really quite strong. But on an apple to apple basis, I think the student enrollment is increased by like 8% to 10. And with the price increase to 5% to 10%, that's why we guided the revenue of the fourth quarter by 12% to 16%.
Speaker 3
Understand. And I just want to I just want to clarify one point. When you say if we compare it on an apple to apple basis enrollment increased by 8% to 10%. What does it mean apple to apple comparison eight to 10%?
Speaker 2
I mean, you should exclude the timing difference like the Chinese New Year and early enrollment in Q1. So you can compare the like the three quarters in total.
Speaker 3
I understand. Got Yes. You.
Speaker 0
We have the next question from the line of Annie Hsieh from Breen Capital. Please ask your question.
Speaker 6
Hi, Steve and Cece. Thanks for taking my call. So could you provide some color on the underlying dynamics of your overall average selling price? It just looks like it dropped considerably this quarter. And kind of what trends can you anticipate going forward, I guess, by the different segments?
I know you've touched on the overall.
Speaker 2
Okay. I think your question is about the price increase. On an apple to apple basis, calculate the ASP by the GAAP revenue divided by the total teaching hours. So the apple to apple ASP increase is about 5% to 10% in this quarter. And going forward, the numbers will be same.
The ASP will be increased by 510% overall.
Speaker 6
And any sort of very different kind of dynamics in each of the different segments? Or were you seeing generally a strong ASP growth in all of the products?
Speaker 2
What I mean is the overall ASP increase will be like between 5% to 10%. But for individual business lines, for the overseas test prep, the ASP increase will be over 10%. And for the U Can, the ASP increase will be at 6% to 10%. And for POP Kids, the price increase will be at 5% to 10%. And for the adult English, the price increase will be at 5% to 10%.
So overall, it's 6% to 10%.
Speaker 6
Okay. That's very helpful.
Speaker 3
Thank
Speaker 2
you. Okay. Thank you.
Speaker 0
We have the next question from the line of Fan Liu from Goldman Sachs. Please ask your question.
Speaker 5
Hi, Stephen and Sisi, congratulations on a solid result. So it's very encouraging that K-twelve enrollment grew by 57% year on year this quarter. Would the management share with us the drivers behind I. E. Which grades or which subject or which regions witnessed the outperformance?
And excluding the fact of late CNY timing, what would the normalized growth look like? And also we also know that the revenue growth of the overall business K-twelve and the POP Kids all lack the enrollment growth accordingly. So could the management show with us the reason behind this? Is this more attributable to the pay decreasing paid course hours of the student? How should we think about the trend going forward?
Thank you.
Speaker 2
Okay. And our K-twelve business grew very strong in this quarter. And I think the main driver for in terms of the grades, I think the U Can is much better than the top kids. And U Can got the student enrollment growth by more than 60%. And I think for the grade for the subject, the non English class grows faster than the English classes.
And for the yes, as I said earlier, if we compare to the student enrollments and price apple to apple, the student enrollments growth will be at the 15% to 20% for the K-twelve business, with the price increase about 5% to 10%. So, I think going forward, the K-twelve business will get the revenue above 20% going forward. Maybe you have heard some class with very low price in the market, but it's only for the size class for the grade one and grade six, so small number of the total class. And so the overall price for the the price increase for the K-twelve business is 5% to 10 an apple to apple basis.
Speaker 4
Does that answer the question?
Speaker 5
Actually, mean, so the revenue growth of the overall business and also K-twelve and POP Kids are all lower than the enrollment growth. So the ARPU is decreasing. So I mean, what's the reason behind that? Because hourly rates are still growing. So for ASP, it still grow by 5% to 10%.
Now what's the reason behind the ARPU decrease? That because of the decreasing paid course hours of the students?
Speaker 2
I think apparently you see the price decrease for the K-twelve business is the first reason is the timing difference like the late Chinese New Year and people enrolled summer class earlier. And second reason is the in the summer, will rent some like the short term classes compared to the last year. So that's why you'll see the the price decrease. But like I said, on an apple to apple basis, the hourly rate of the price will be increased by 5% to 10%.
Speaker 5
Okay, got it. Thank you.
Speaker 4
Okay. Thank you.
Speaker 0
We have the next question from the line of Leon Shi from JPMorgan, Hong Kong. Please ask your question.
Speaker 4
Yes. Hi. Thanks. Congrats.
Speaker 7
The question is, if all
Speaker 4
these enrollment growth and all these enrollment numbers you're talking about and even for the full year enrollment of 2,896, 400 enrollment like do these include like online pure online and very low ASP like non physical courses? Or are these all like live courses for your enrollment?
Speaker 2
Hi, Liang. Our enrollment is only calculated for our offline student enrollments, not calculated for the online and very low ASP students.
Speaker 4
So the huge I mean like for U Can for instance, the huge difference between your apples to apples 8% to 10% and your actual 65% enrollment growth, I mean that's just purely all of this timing difference. There's no other reason?
Speaker 2
As I said, firstly there's a timing difference. The second is that in the summer, we have some short term classes. So I think the ASP changes to some structural some like the mix shift. Let's just say for the summer
Speaker 4
courses and I'm enrolling like at the May, I would be counted as an enrollment even though the sales and the short courses start is mostly in the 1Q. Is that how it works? Like if I sign up on May 29, I'm counting as one enrollment even though like the courses is mostly in 1Q. Is that how it works?
Speaker 2
Yes. Almost all these short term class will happen in 1Q in the summer classes.
Speaker 4
Okay. But if I signed up in 4Q, I'd still you just count in 4Q, right?
Speaker 2
Yes. If you sign in 4Q, we reported the enrollments in Q4, but we reported the GAAP revenue in the coming Q1.
Speaker 4
Okay. Okay. That's how you get this huge difference. That's fine. Okay.
Thanks. Thank you.
Speaker 2
Okay. Thank you.
Speaker 0
We have the next question from the line of Tian Hou from T. H. Capital. Please ask your question.
Speaker 3
Hi, Stephen and Sisi. One question is related to your royalty program and you put that in place a couple of quarters ago. So the purpose of that is really to increase the renewal rate. So I wonder what do you see today compared with the time before you put this program in place? That's the question.
Speaker 2
Yes. I think the okay. Go ahead please.
Speaker 3
One more question. So there's one thing in the market, I think there's a very tremendous uncertainty among investors, which is a lot of Chinese companies go private. However, some company when they go private, they either purposely lower the price or whatever they do. So that make investor concerns. If every single Chinese company planning to go private and purposely lower the price, then no one will ever buy China stock, right?
So definitely it's not a good thing. So I would like to have a clear answer from the management. What's your plan for your stock? So two questions. Thank you.
Speaker 2
Okay. And the first question is about the loyalty program. We lost the loyalty program in last October. And in March, we narrowed down from the old subject to K-twelve business only. And after the execution of the customer loyalty program, we are seeing the student retention rates guide higher by 1% to 2%.
So the low tip program help us to strengthen the stickiness of our students. And so going forward, I think the low tip program will help us. And for your second question, yes, we're seeing a lot of U. S.-based Chinese ADRs announce the privatization plan this year and plans to release the Asian markets someday. But NewRental has no plan to privatize.
Our goal of the whole company is to focus on the business and create shareholder value continuously in the long term.
Speaker 3
That's very helpful. Okay. Thank
Speaker 2
Thank you.
Speaker 0
Have the next question from the line of Alvin Jung from Morgan Stanley. Please ask your question.
Speaker 7
Hi, Sisi and Stephen. Thank you for taking my question and congratulations on a strong quarter. I want to have a quick question on the competition. Do you think the price war in Tier one cities, especially in the off school tutoring market is going worse this summer? Because I noticed there are a lot of attractive promotions from both you and your competitors like online Yiren ban and from Yuchen with Yiren ban.
Do you have such a concern and this kind of price war will impact the margin in long term? Thank you.
Speaker 2
Okay. Yes. There's a lot of noise about the like the price war. Someone called the price war in last recently. And maybe you have heard the new rental provide like the very low price with like the RMB50 or 10 yuan in the market.
But it's only for the grade one and grade six and for some cities in the science class like the math or like the chemistry. So I think the purpose of this is to attract more students to try our new O2O product. But the total number is quite small. It's very small. So our I don't think this will give a margin, because it's I think the impact is very tiny.
Thank you.
Speaker 4
Does that answer your question?
Speaker 7
Yes. Thank you. Very helpful. Okay.
Speaker 0
We have the next question from the line of Jialong Shi from Credit Suisse. Please ask your question.
Speaker 8
Hi. Good evening, Steve and thanks for taking my call. My question is actually somewhat related to a previous question. I read from Chinese media, which quoted your Chairman, Michael Yu, as saying, New Oriental may consider to spin off some of your business segments in the future and list those segment business segments separately in Chinese Asian market. So I just wonder what are the business segments that most likely get listed in Chinese Asian market?
Thank you.
Speaker 2
Okay. Thanks, Joe. As I answered the Tian's question, NewAngel has no plan to privatize or and go public in the Asia market. And also, we don't have any plan to spin off any subsidiaries to go public till now. So that's my answer.
Speaker 8
Okay. And can I ask another follow-up relating to your K-twelve program? I just wonder if you guys provide any sort of breakdown of your U. Revenue by top three cities and their respective growth rate?
Speaker 2
You mean this quarter or going forward?
Speaker 8
For Q4.
Speaker 2
I'm sorry?
Speaker 8
For Q4.
Speaker 2
For Q4. Okay.
Speaker 8
Right.
Speaker 2
The middle school, high school student enrollment has increased by 68% and the GAAP revenue is increased by 28%. So you cannot calculate just use the GAAP revenue divided by the student enrollment to calculate the ASP.
Speaker 8
Right. So what is the revenue breakdown by top three cities? What are the top three cities for U Can?
Speaker 2
All the cities, the Beijing account for 24%, 25% of the total revenue. And the second one is Shanghai. Shanghai is 7% of the total revenue. The third one is Xi'an. Xi'an is 5% of the total revenue.
Speaker 8
5%. So this is for Yukon?
Speaker 2
5% of Xian.
Speaker 8
So this is for Yukon, right?
Speaker 2
Yes. What are the growth rates? Not only for Yukon, but overall business also.
Speaker 8
For the overall business. So what is the growth rate? Do you what are the growth rate for you sorry, what are the breakdown for U. Program in the top three cities?
Speaker 2
We don't disclose the revenue growth rates by three. So but I can can I disclose by the K-twelve business by three?
Speaker 8
Sure, sure. Yes, that will be great.
Speaker 2
Beijing is 24%, the first one. And the second one is think it's Shanghai. The second one is the CI, it comes for 8% of the total revenue of K-twelve business. The third one is Shanghai. Shanghai is 5% for K-twelve business.
We don't have a number of the U Can business.
Speaker 8
I see. I see. So I just wonder what are the growth rates for each of these three cities?
Speaker 2
For the K-twelve business Beijing is increased by more than 15% and Xi'an grew by 30%. It did a very good job. And Shanghai increased by 24% because of the low base number.
Speaker 8
Yeah. Thank you very much.
Speaker 2
Okay. Thank you.
Speaker 0
We have the next question from the line of Andrew Orchard from Nomura. Please ask your question.
Speaker 9
Hi. Thanks for taking my question. I have a question with regards to your enrollment outside of your K-twelve. And I think based on my calculations, we saw your test prep and English adult enrollment pick up this quarter. And that's I think been a reversal of the trend that we've seen over the last few quarters.
Can you give us some disclosure on why Thanks.
Speaker 2
I think it's mainly the timing difference. So overall, if you look at the number going forward, the student enrollment of the adult English and domestic test prep will be decreased by 15% year over year. With ASP increased by 5% to 10%, the GAAP revenue will be decreased by 10%. But we have the same situation in last three years in a row.
Speaker 9
Got it. And so you get 15% downwards for the next quarter or this current quarter?
Speaker 2
For the next whole year. Yes, 10 to 15% down year over year still in enrollment.
Speaker 4
Got it.
Speaker 9
Okay. Thank you. Okay.
Speaker 2
Thank you.
Speaker 0
We are now approaching the end of conference call. I will now turn the call over to New Oriental's CFO, Stephen Yang, for closing remarks.
Speaker 2
Again, thank you for joining us today. If you have any further questions, please do not hesitate to contact me or any of our Investor Relations representatives at CCE. Okay. Thank you. Thank you, guys.
Ladies
Speaker 0
and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.