Sisi Zhao - Investor Relations Director Stephen Zhihui Yang - Chief Financial Officer.
Cynthia Meng - Jefferies & Company, Inc. Alice Yang - Macquarie Securities Anne Shih - Brean Capital, LLC Fan Liu - Goldman Sachs Leon Chik - JPMorgan Tian Hou - T.H. Capital, LLC Alvin Jiang - Morgan Stanley Jialong Shi - Credit Suisse Andrew Orchard - Nomura.
Ladies and gentlemen, good evening and thank you for standing by for New Oriental’s Fourth Fiscal Quarter and Fiscal Year 2015 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. Sisi Zhao, New Oriental’s Investor Relations Director. Ms. Zhao, please proceed..
Thank you. Hello, everyone and welcome to New Oriental’s fourth quarter and fiscal year 2015 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 new 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 Oriental 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, a 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..
Thank you, Sisi. Hello, everyone, and thank you for joining us. I’m pleased to be able to provide an overview on both the fourth quarter and for fiscal year 2015, which we ended on a quite positive note. We concluded the final quarter of the fiscal year with a continuing steady recovery in both top line growth as well as student enrollments.
We believe the highlight of strength of the business as well as our success in driving forward the growth strategy we launched in early fiscal year 2015.
Introduced in the first quarter this year our Optimize the Market strategy is allowing us to focus on maintaining a balance between top line and bottom line growth, as well as building out our online and offline integrated education 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 2015 by stating three areas. First, we made good progress in expanding our footprint. We successfully further penetrated our existing market, where we see the greatest growth potential to drive our margin.
We had our learning centers expand hours 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-12 all-subjects after-school tutoring business, we continue to have great business and it has become the key revenue driver. It achieved our revenue growth above 15% for the fiscal year and also had a significant enrollment increase.
For further detailed note, that our U-Can program, which is a part of the business achieved more than 22% revenue growth for the full fiscal year. This was achieved despite the negative impact from and certainly of the Gaokao reform at the beginning of fiscal year 2015.
Third, we made great strides in following our integrated ecosystem and pushing forward into the online space. We are making a lot of progress in developing online presence and one that will be well integrated with our offline offerings.
We believe our offline and online integrated program is more advanced than anything else that we offer in the marketplace, as it truly address 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 a shining star during the fiscal year. Since its launch in the second quarter, we have registered two consecutive quarters of positive revenue growth and student enrollments have significance [ph] in taking part.
Judging by the very positive feedback from students in markets, we expect the product to achieve double-digits revenue in fiscal year 2016. Also the other business line of O2O system, U-Can Visible Progress Teaching system extends 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 business, improve our pricing power, and eventually look for 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 our overall Optimize the Market strategy. Also I want to take a minute to address our efforts to enhance shareholder’s value during fiscal year 2015.
As we reported, we announced in third quarter we completed a share repurchase program in March 2015. In an 8-month period, we repurchased nearly 3 million ADS for an aggregate consideration of $59.4 million.
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 October 7, 2015, which will be another $63 million capital returned to shareholders, funded by the surplus cash on the capital in 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 full overview for the fourth quarter revenue results.
Revenue was up by 14.4% year-over-year to $328.8 million and it 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 year in 2015, delaying enrollment for Spring classes and resulting in a shift from third quarter to fourth quarter.
And also students choose to enroll in the summer class earlier than before, resulting in a shift from the first quarter of fiscal year 2016 to the fourth quarter of fiscal year 2015.
Our key revenue driver, the K-12 all-subjects after-school tutoring basis, grew almost 21% year over year to about $164 million, contributing 48% of our revenues for the quarter. The U-Can business saw an increase of about 27% in gross revenue and significant 65% growth in enrollment.
As discussed earlier, we started new customer loyalty program to encourage repeat business and for the fourth quarter this resulted deferred revenue of about $5.3 million, which is expected to be recognized within two years without any additional expenditures subject with such revenue. So, if including this, our top line growth will have been 16.2%.
As mentioned, the dampening effect on revenue will just be temporary. Starting in April 2015 the company decided to narrow the scope of the program to include only K-12 business for select cities, such that we expect the dampening impact to reduce starting in the first quarter of fiscal year 2016.
With respect to the key sectors on pricing on an apple-to-apple basis with GAAP revenue divided by total teaching hours. ASPs increased by about 10%. Breaking it down on hourly base plan, ASP for U-Can increased 5% to 10%. And ASP for oversea test 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 the strategy of not increase ASP much and to gain further penetration into the market. Now, let me work you through our performance across individual business lines.
As mentioned, our K-12 all-subjects after-school tutoring business, continue 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 improved offerings for POP Kids and our advanced teaching methods, we expect K-12 to continue to drive our business growth.
Breaking down a bit further, you U-Can middle and high 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 grew 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 continues steady recovery with gross revenue growth of 6%, and the 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 oversea test preps into some business achieved growth of more than 14% year-over-year for the fourth quarter and 11% for the fiscal year - 11% for the fiscal year, sorry. Finally, revenue growth of VIP personalized class business increased principally by 31% year-over-year in the fourth quarter, and increased 19% for the fiscal year.
Now, let me go through some more specifics and progress we’ve made in the fourth quarter and fiscal year with our Optimize the Market strategy. Let me first touch on our core offline business. In the fourth quarter was fully expand in existing market adding a net of the two learning centers.
For fiscal year 2015 as a whole, we added another 21 learning centers bringing our total learning centers to 724 and expanded certain existing learning centers by adding a total of over 11,000 square meters of additional classroom area.
As for our online business, we invested roughly $12 million in the fourth quarter and $39 million for the fiscal year to continue to drive this forward.
This has many untapped opportunities in the online education market in China, and we’re preparing ourselves to provide the students and teachers with the best and most interactive resources and truly enhance ourselves valid to the platform customers.
We believe nowhere 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 a brief recap all three levels of our online platform.
The first level also the core of our online system is an O2O Two-way Interactive Education System across all our business lines. The second level is our pure online learning platform koolearn.com and supplementary online education products under the New Oriental brand.
The third level of our ecosystem is for New Oriental to take minority shareholdings in online education companies that complement our own online education offerings.
Let’s start with O2O Two-way Interactive Education System, which we’ve rolled out and upgraded in the first quarter of the fiscal year across all major product lines, aiming to extend 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 in which reached more than 40 cities by the end of the fiscal year 2016. This is a unique online platform that helps students to study after class as an memorable and enjoyable manner.
It’s one of the key offerings that set us apart from our peers in the markets. I said earlier, as we rollout a newly revamped POP kids English program Shuang You, our POP kids program reported 6% of revenue growth and drastic increase of 48% in enrollment in fourth quarter.
The new program is designed to provide a multi-interactive learning resources and create more personalized learning experience based on students own study records and interest. 38 cities in China are using these new programs and more to come, because pushing out the improved offerings is our focus in 2016.
We have full confidence that this advanced POP kids offerings will spread New Oriental’s brand awareness in the highly competitive education service market in China and help us capture extra growth. The O2O Two-way Interactive Education System for the domestic test prep program was being used in six cities by the end of this quarter.
And we’re testing that O2O oversee test prep program in seven cities so far. For the 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 $9.1 million, representing a 26% increase year-over-year.
The number one 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 $10.7 million.
Koo.cn, our own live broadcast open platform for both New Oriental and third-party teachers achieved about 515,000 and 900 registrations in the fourth quarter. DONUT, a series of game-based mobile learning applications for children reported over 32.5 million downloads in the fourth quarter, up from 7 million in the third quarter.
Le Ci, an English language vocabulary training application were launched in late 2014 for mobile phones and tablets app reported over 2.4 million users by the end of fourth quarter. This more than doubled from the results we had for the third quarter.
Turning to the third quarter, the third level of our online education ecosystem, we have invested in select online education companies with the minority stakes and we’re constantly looking for new opportunities that will not only complete our own offerings, but also support our goal to achieve hopefully in tuition.
In December 2014, we’ve made investments in Golden Finance [ph], the largest finance training school in China, providing both offline/online test prep course, including CFA, ACCA, CIMA, and CPA, as well as some coverage training programs. As of the end of the fourth quarter, the school was opening in four cities.
Later in March 2015, we’ve made investments in RoboRobo, the largest robots-making education company in China targeting young learners aged from 4 to 15. But end of this fourth quarter, it had about 50 self-owned learning centers and over 70 franchised learning centers in [indiscernible] in China.
Together with our previous investments in uda100.com, [ph] Alo7.com, Tarena, and Juesheng.com we’re in process of building our O2O integrated educational ecosystem and create more opportunities to partner with other new online education companies to enhance our broad offerings and extend our leading position in China’s private education market.
Now let’s take a look at some of the key financial metrics for the fourth quarter. Operating costs and expenses for the quarter were $306.3 million, a 17.7% increase year-over-year. Non-GAAP operating costs and expenses for the quarter, which exclude share-based compensation expenses were $301.1 million, a 17.4% increase year-over-year.
Cost of revenues increased by 20.8% year-over-year to $137.5 million, primarily due to the increase in teachers’ compensation for more teaching hours and part of R&D cost of our pure online education platform koolearn.com.
Selling and marketing expense increased by 3.3% year-over-year to $53.3 million, primarily due to the increase in selling and marketing staff’s compensation. General and administrative expenses for the quarter increased by 21.7% year-over-year to US$115.4 million.
Non-GAAP general and administrative expenses, which exclude share-based compensation expenses, were $110.4 million, a 21.4% increase year-over-year, primarily due to increase in R&D expenses and HR expenses related to the development of our online/offline integrated ecosystem.
Total share-based compensation expenses, which were allocated to related operating costs and expenses increased by 32.1% to $5.2 million in the fourth quarter of 2015. Income from operations for the quarter decreased by $26.9 million to $22.5 million.
Income from operations will have been about $27.8 million, if not for the accounting effect for the company’s new customer loyalty programs. Non-GAAP operating income decreased by 20.2% to $27.7 million 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 the prior year. Net income attributable to New Oriental for the quarter was $35.2 million, representing a 17.9% decrease from the same period of the prior year.
Capital expenditures for the quarter were $11 million, which were primarily attributable to the opening of 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 as the instructions are delivered, at the end of the fiscal year 2015 was $501.2 million, an increase of 31.6% as compared to $380.8 million at the end of the fiscal year 2014.
I’d like to talk just a bit about our overall outlook for fiscal year 2016. During fiscal year 2016, we will continue to implement Optimize the Market strategy to further build and improve the 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 identified the most growth potential and open 30 to 40 new learning centers for our K-12 after-school tutoring business in existing cities that are driving both revenue growth and margin expansion. We will continue to invest heavily as we did in fiscal year 2015.
Fiscal year 2016, will also be an investment year as we work to fully build out our integrated offline and online ecosystem. We will continue to invest and spending about $50 million in the fiscal year.
We consider this investment is essential to helping stronger our market dominance and we are fully confident that all of this effort will bring higher growth and sustainable stability in the long-term. We’ll focus on additional quality improvements for all of our offers.
We’ll hire better and more senior management features, R&D, and IT staff for our offline business, to upgrade content and be innovative with our products. This is to ensure we are the premium offer in the China market.
To achieve this, we expect the total compensation for school heads, business line managers, and key R&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 our organization, so we’ll continue to focus on this.
We have 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 temporarily dampen our overall operating margin. And we believe our fiscal year 2016 operating margin will be slightly lower than in fiscal year 2015.
This being flat, we will like to highlight that our operating margin for our offline business has been experiencing study recovery over the past three quarters.
With respect to the first quarter of fiscal year 2016 specifically, we anticipate total net revenue to be in the range of $441.3 million to $457 million, representing year-over-year growth in the range of 12% to 16%. About $5.3 million revenue will be deferred resulting from the company’s customer loyalty programs.
If not considering that, the product revenue growth rate is expected to be in the range of a 13% to 17%. All in, we’re excited of our 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 and preliminary view, which is subject to change. At this point, we will take your questions. Operator, please begin..
Thank you, sir. The question-and-answer session for this conference call will start in a moment. [Operator Instructions] We have the first question from the line of Vivian Hao from Deutsche Bank. Please ask your question..
Hi, management. This is Irene Dun [ph] asking question on behalf of Vivian Hao. We have a question regarding the POP Kids. We know that this segment enrollment growth was quite encouraging.
So we would like to get management’s expectation of the forward-looking trend for fiscal year 2016?.
Okay. The student enrollment for POP Kids is quite strong. And I think this is mainly driven by our good O2O products. So the students will give us a very positive feedback for our product. So we’re taking the market share now, and going-forward I think for the next whole year, I’d like to guide the student enrollment for the POP Kids about 10% to 15%.
With price increase to 5% to 8%, I think the value of POP Kids will grow by 15% to 20% next year.
Does it answer your question?.
Yes, thank you. I’ll get back to the queue for my next question. Thanks..
Okay. Thank you..
We have the next question from the line of Cynthia Meng from Jefferies. Please ask your question..
Thank you, management. We have one question.
Is the lower gross margin a result of lower pricing or a more - it’s because of the increasing mix shifts towards the K-12 business?.
I think the gross margin was decreased by 2% this quarter. And first we’ve been asked that, we spent the more teaching hours in this quarter, that means the VIP class contributes the percentage of the total revenue more than the - our small and big classes. This is the first reason.
The second reason is for pure online company Koolearn.com, they spend $2 million to $3 million more than we expect before this quarter. So they are the two events 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 positive reason for - the positive thing for the gross margin is to - for our rental expenses is 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 the VIP class - the revenue of VIP class contribute more and more.
So the next year, I think teaching hours will be little bit more than this year. So I think the gross margin will be flat or little bit lower - slightly lower..
Okay. Thank you..
Did it answer your question?.
Yes. Thank you..
We have the next question from the line of Alice Yang from Macquaire. Please ask your question..
Hi, Stephen, thanks for taking my question. This is Alice from Macquarie. I have a question about your 2Q guidance. As the case, enrollment grew around 35% year-on-year in this quarter, so I assume most of them will be realized than accounted as revenue in the next quarter given on average three months cost spent. I don’t know whether it’s right.
If this is right, then why you guided relatively speaking a conservative 2Q revenue growth. This is only 12% to 16%. Is that the ASP sort of reason? Thanks..
Okay. The student enrollment is quite strong which is increased by 34% this quarter. I think it’s mainly due to the timing difference with two events. The first one is 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 one more K-12 business students choose to be enrolled in summer class earlier than before. So, even with this tiny difference, the student enrollment is really quite strong, but on apple-to-apple basis, I think the student enrollment is increased by like 8% to 10%, with the price increase to 5% to 10%.
That’s why we guided the revenue of the first quarter by 12% to 16%.
Does it answer your question?.
Sure. I just want to clarify one point.
When you say if we compare in an apple-to-apple basis, enrollment increased by 8% to 10%, so what does it mean apple-to-apple comparison 8% to 10%?.
Well, that means, you should exclude the timing difference like the Chinese New Year and the early enrollment in Q1. So, you can compare like the three quarters in total..
Oh, I understand, got you. Thanks..
Yes..
We have the next question from the line of Anne Shih from Brean Capital. Please ask your question..
Hi Stephen and Sisi, 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 what trends can you anticipate going forward, I guess, by the different segments, I know you’ve touched on the overall..
Okay. I think your question is about the price increase. On apple-to-apple basis, we 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 would be same. The ASP will be increased by 5% to 10% overall..
And any sort of very different kind of dynamics in each of the different segments or are you seeing generally a strong ASP growth in all of the products?.
What I mean is the overall ASP growth will be right 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%..
Okay. That’s very helpful, thank you..
Okay, thank you..
We have the next question from the line of Fan Liu from Goldman Sachs. Please ask your question..
Hi, Stephen and Sisi. Congratulations on a solid result. So, it’s very encouraging that K-12’s enrollment grew by 57% year-on-year this quarter.
Would the management share with us the drivers behind i.e., which grades or which subjects or which regions we witnessed the outperformance? And if excluding the effects on late CNY timing what would the normalized growth look like? And we also know that revenue growth of the overall business, K-12 and the POP Kids all lack the enrollment growth accordingly, so could the management share with us the reason behind this? Is this more attributable to the decreasing paid course hours of the student? How should we think about that trend going forward? Thank you..
Okay. And our K-12 business grew very strong in this quarter. And I think the main driver for the - in terms of the grades, I think the U-Can is much better than POP Kids. And the U-Can, regarding the student enrollment, rose by more than 50%. And I think for the subject the non-English class grew faster than the English classes.
And as I said earlier, if you compare to the student enrollments and price apple-to-apple, the student enrollment growth will be at 15% to 20% for the K-12 business with the price increase above 5% to 10%. So, I think going forward, the K-12 business will get the revenue above 20% going forward.
And mainly you have heard like some class with very low price in the market, but this is only for the science [ph] class for the Grade 1 and Grade 6, so it’s a small number of the total classes. So, the overall price for the - the price increase for the K-12 business is 5% to 10% on apple-to-apple basis.
Does it answer your question?.
Actually, I mean, so the revenue growth of the overall business and also K-12 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 the hourly rates are still growing. So, for ASP, it still grows by 5% to 10%.
Now, what’s the reason behind the ARPU decrease, is that because of the decrease in paid course hours of the students?.
I think, yeah, parallely you see the price decrease for the K-12 business is the - the first reason is the timing difference like the late Chinese New Year and people enrolled in summer class earlier. And second reason is the - in the summer we will range some like the short-term classes compared to the last year.
So, that’s why you will see the - like the price difference. But like I said, on apple-to-apple basis the hourly rate of the price will be increased by 5% to 10%..
Okay, got it. Thank you..
Okay. Thank you..
We have the next question from the line of Leon Chik from JPMorgan, Hong Kong.
Please ask your question?.
Yes, hi. Thanks. Congrats.
The question is, if all these enrollment growth and all these enrollment numbers you’re talking about and even for the full year enrollment of 2,896,400 student 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 the enrollment?.
Hi, Leon. Our enrollment is only calculated for the - our offline student enrollment, not calculating the online and very low ASP students..
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 is no other reason?.
As I said, firstly, the timing difference; then secondly, there is - in the summer we have some like the short-term classes. So adding to the ASP, the ASP changes some like the structural or some like the mix to shift, yes..
So, let’s just say for the summer courses, and I’m enrolling like at the end of May, right? I would be counted as an enrollment even though the sales and the short courses start mostly in the 1Q, is that how it works? Like if I sign up on….
Yes..
May 29, I’m counted as one enrollment even though like the courses is mostly in 1Q, is that how it works?.
Yes. Almost all these short-term classes will happen in 1Q in the summer classes..
Okay.
But If I signed up in 4Q, you’ve counted in 4Q, right?.
Yes. If you sign in 4Q, well, we reported the enrollments in Q4, but we reported the GAAP revenue in the coming Q1..
Okay. Okay, that’s how you get this huge difference..
Yes..
Okay, that’s fine..
Yes..
Okay, thanks. Thank you..
Okay. Thank you..
We have the next question from the line of Tian Hou from T.H. Capital. Please ask your question..
Hi, Stephen, Sisi. One question is related to your loyalty 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 you’ll see today compared with that, the time before you’ll put this program in place? That’s the question?.
Yes.
I think the - okay, go ahead, please?.
Stephen, one more question..
Okay..
So there’s one thing in the market, I think there is 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 concern, if everything go 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 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..
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-12 business only. And after the excuse of the customer loyalty program, we are seeing the student retention rates guide higher by 1% to 2%.
So the loyalty program helps us to strengthen the thickness of our students. And so going forward, I think the loyalty program will help us. And for your second question and yes, we’re seeing a lot of United States Chinese ADRs announced the privatization plan this year and plan to release in the Asia market some day.
But New Oriental has no plan to privatize. Our goal of the whole company is to focus on the business and create shareholder value continuously in long-term..
That’s very helpful. Thank you..
Okay. Thank you..
Yes..
Yes..
We have the next question from the line of Alvin Jiang from Morgan Stanley. Please ask your question..
Hi, Sisi and Stephen. Thank you for taking my question, and congratulations on the strong quarter. I only have a quick question on the competition.
Do you think that the price fall in tier 1 cities especially in the afterschool 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 [indiscernible]. Do you have a special concern and this kind of price will impact the margin in long-term. Thank you..
Okay. Yes, there is a lot of noise about the - like the price war. Someone told the price war in the reasonably [ph] and maybe you have heard the New Oriental provide like the very low price with like ¥50 or ¥10 in the market. But it’s the only for the Grade 1 and Grade 6 and for some cities in the science class like the math, where like the chemistry.
So I think the purpose of this is to attract more students to try our new O2O products. But the total number is quite small, is very small.
So our - I don’t think we’ll keep a margin, because I think the impacts are very tiny, okay?.
Okay. Thank you..
Does it answer your question?.
Yes, thank you. That’s helpful..
Okay..
We have the next question from the line of Jialong Shi from Credit Suisse. Please ask your question..
Hi, good evening, Stephen. Thanks for taking my call. My question is actually somewhat related to previous question. I read from Chinese media, which quoted your Chairman, Michael Yu saying, New Oriental may consider to spin-off some of your business segments in the future and list those segments - business segments separately in Chinese Asia market.
So I just wonder what are the business segments that most likely get listed in Chinese Asian market? Thank you..
Okay. Thanks, Jialong. As I answered to Jiang’s question, the New Oriental 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..
Okay. And can I ask another follow-up for relating to your K-12 program.
I just wonder if you guys provide any sort of a breakdown of your U-Can revenue by top three cities and their respective growth rates?.
You mean the - this quarter or going forward?.
For Q4?.
I’m sorry..
For Q4?.
For Q4, okay..
Right..
The middle-school, high-school student enrollments has increased by 68%, and the GAAP revenue has increased by 28%. But you cannot calculate - just use the GAAP revenue divided by the student enrollment to calculate the ASP..
Right.
So what is the revenue breakdown by top three cities? What are the top three cities for U-Can?.
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..
5%.
So this is for U-Can?.
5% for Xi’an..
So this is for U-Can, right?.
Yes..
So what are the growth rate….
Not only for U-Can, but overall business, yes, also..
For the overall business. So what are the growth rates? So what are the growth rate for - sorry, what are the breakdown for U-Can program? The top three cities….
We don’t disclose the revenue growth rates by cities. So I can just let - can disclose by the K-12 business by cities..
Sure, sure. Yes, that would be great..
Okay. Beijing is 24%, the first one. And the second one is, I think is Shanghai is - the second one is the Xi’an, it account for 8% of the total revenue of K-12 business. The third one is Shanghai, Shanghai is 5% for K-12 business. I don’t have number of the U-Can business..
I see, I see.
So I just wonder what are the growth rates for each of these three cities?.
The - for the K-12 business, Beijing has increased by more than 15%; and Xi’an growth by 30%, it did very good job; and Shanghai increased by only 4% because of the low base number. Yes..
Okay. Yes. Thank you very much..
Okay. Thank you..
We have the next question from the line of Andrew Orchard from Nomura. Please ask your question..
Hi, thanks for taking my question. I had the question with regards to your enrollment outside of the K-12. And I think based on my calculations, we saw your test prep and English adult enrollment pickup this quarter. And that’s I think been a robust trend that we’ve seen over the last few quarters.
Can you give us some disclosure on why that’s been the case? Thanks..
I think this of mainly the timing difference. So, overall, if you look at a member going forward, the student enrollments 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 the last two years in a row..
Got it.
And sorry, they’re 50% downwards for the next quarter or the - this current quarter?.
For the next quarter, yes. 10% to 15% down year-over-year in student enrollment..
Got it. Okay. Thank you..
Okay. Thank you..
We’re now approaching the end of the conference call. I will now turn the call over to New Oriental’s CFO, Stephen Yang for closing remarks..
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 and Sisi. Okay, thank you. Thank you, everybody..
Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect..