Sisi Zhao - IR Director Chenggang Zhou - President Stephen Yang - Chief Financial Officer.

Julia Pan - Macquarie Anne Shih - Brean Capital Fan Liu - Goldman Sachs Yoon Jin Kyu - Mizuho Securities Tian Hou - T.H. Capital Alvin Jiang - Deutsche Bank Mariana Kou - CLSA Andrew Orchard - Nomura.

Ladies and gentlemen, good evening and thank you for standing by for New Oriental Second Fiscal Quarter 2016 Earnings Conference Call. At this time, all participants are in listen-only mode. After management’s prepared remarks, there will be a question-and-answer session. Today’s conference call is being recorded.

If you have any objections, you may disconnect at this time. I 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 second fiscal quarter 2016 earnings conference call. Our financial results for the periods were released earlier today and are available on the Company’s website as well as on Newswire services.

Today you will hear from Chenggang Zhou New Oriental’s President; and Stephen Yang, Chief Financial Officer. After their prepared remarks, Chenggang and 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 Mr.

Zhou..

Thank you, Sisi. So hello everyone; thank you for joining us, and this is my first time to be here speaking to investors and analysts, as President of New Oriental, a new role I began earlier generally. So, I’m so happy to be here and would like to thank Michael, Louis, and Stephen for all their support.

As Michael said on the last conference call, my job will be to guide corporate strategy and oversee business development, which I’m quite excited about. So New Oriental entered a new chapter with the optimized market strategy and in particular the O2O integrated education ecosystem. So, it is an exciting time to be here in this position.

So now, let’s now look at the details of our quarterly performance. Revenues was up by 17.7% year-over-year to $278.1 million. So, it’s not including the impact of the recent depreciation of renminbi against the U.S. dollar. The revenue growth rate would have been 22.1%.

So, this strong top-line performance was mainly driven by significant growth in the total enrollments, which went up 35.3% to approximately $841,000 for the quarter. So, you may have noticed that our enrollments increased more than it normally had in the second quarter, in previous years.

This is because we moved the registration of the winter classes earlier to the month of November, starting this fiscal year and we will continue to do so going forward. So, this decision is in response to the increasing demand from our students who wish to secure class booking as early as they can.

So, after contributing -- another contributing factor to the enrollment growth is the continuous roll out of our new POP Kids program and U-Can VPs, [ph] which have been generating quite positive feedback from both, students and teachers. The new POP Kids program reached 44 cities and U-Can Visible Progress system reached all the existing cities.

So, our revenue driver, the K-12 all-subjects after-school tutoring business achieved revenue growth of more than 33% and enrollment increase of 59%. It’s important to note it has been a year since we went out to the newly revamped POP Kids program, which definitely helped to further differentiate New Oriental from the rest of the market.

So for the quarter, POP Kids continued to deliver strong results from revenue up 30% and we expect this trend to continue for the second half of the year. In terms of pricing, program blended ASP decreased by 7% year-over-year on an apples-to-apples basis, which is GAAP revenue divided by the total teaching hours.

Hourly blended ASP increased about 2%. A breakdown of hourly branded ASP, U-Can increased about 1%, overseas test program is flat, POP Kids increased about 60% year-over-year. So, this needs probably a bit more explanation.

So first of all, the early registration, winter classes hold this reduction per program branded ASP because of the winter classes are shorter than the autumn classes in terms of the total classes hourly.

Secondly, during the second quarter, we made an adjustment to the semester arrangement for the POP Kids program, which used to have two or three semesters a year and now we have four to make it more flexible for the students to plan for their learning process.

Therefore, we can see now -- we’re seeing a reduction in the quarterly per program blended ASP. However, if you look at it on a yearly basis, the impact is minimal as the total class hours would have still be same or quite similar. Thirdly, we are seeing the slowdown of VIP classes, which have a higher ASP.

Finally, we want to point out that RMB devaluation has negatively impacted our ASP growth rates, which would have been 4% higher. So now, let me walk you through our performance across individual business lines.

Our K-12 all-subjects after-school tutoring business experienced gross revenue growth of more than 33% year-over-year for the second quarter and enrollment growth of about 59%.

Breaking to them, U-Can middle and high school all-subjects after-school tutoring business achieved gross revenue increase of 35% year-over-year, student enrollments growth 56% year-over-year. So POP Kids program continued this growth momentum with the gross revenue up to 30% and enrollment significant to 62% year-over-year.

As the management said repeatedly, we’re quite confident that POP Kids will play an increasingly important role in realizing further growth for K-12, and this is proving to be true quarter-over-quarter.

So, our business overseas test prep and consulting business achieved revenue growth of 4% year-over-year, and I believe the growth will be bigger when it comes to the Vision Overseas quarter that is the last quarter. Finally, revenues for VIP personalized classes business increased 9% year-over-year.

So now, let me provide some updates on the ongoing execution for the optimized market strategy. As we emphasized before, we’re focused on maintaining a hosted balance between the top-line and the bottom-line growth while investing heavily in the build-out of our O2O integrated education system.

So, starting with the core of our business, we opened a new school in Weifang, an emerging and populous city that lies in eastern China. We also closed a net of two learning centers while we expanded some existing ones, so adding a total of approximately 14,000 square meters of classroom area.

So, in the approaching winter and the spring quarters, we will continue to improve the utilization at our existing schools and learning centers and will add some capacity in the cities that demonstrate the high growth potential.

So for online we spent about $30 million in further improving our O2O system in the second quarter and this is in line with our $50 million investment plan for the fiscal year.

Clearly, our efforts are paying off as the new O2O system for K-12 is enhancing customer attention rate and brining in new customers as well, which therefore contributed to the revenue growth for the second quarter.

This O2O system has become the defining factor for the New Oriental and we truly believe it will continue to enhance our profitability for the next few years. So, before I go into the details about our online business, just a quick recap of all the three levels of our online platform.

The first level also the core for online system is an O2O Two-way Interactive Education System across all of our business lines; the second level is our pure online learning center, a learning platform and supplementary online education products under the New Oriental brand.

The first level of our ecosystem is for the New Oriental to take minority shareholdings in online education companies that complement our own online education offerings. That is investment.

Let’s start O2O Two-way Interactive Education system which we rolled out and upgraded in the first quarter of fiscal 2015 across all major product lines in order to extend New Oriental traditional offline classroom teaching offerings to online education services. So, solid progress was made in all fronts.

U-Can Visible Progress Teaching system has been used in all the 52 existing cities and a positive market feedback keeps coming in. So, POP Kids English program, or the Shuang You in Chinese saw another quarter of revenue increase of 30% and enrollment of up to 62% year-over-year.

By the end of the second quarter 44 cities in China are using POP Kids Shuang You. The O2O for the domestic test prep program was being used in five cities by quarter-end. So, good news on the O2O for the oversea test prep program, it has been officially launched in the second quarter and now it’s being used in two cities.

We will continue with this roll out for the rest of the year. For the second level of our online education ecosystem, we have seen healthy growth in our pure online learning platform and other supplementary online education products. During the second quarter, Koolearn.com generated net revenues of $13.3 million, up to 19.4% year-over-year.

The number of paid users increased over 215% year-over-year. The number of cumulative registered users has reached more than 11.9 million. Koo.cn, our own live broadcast open platform for both the Oriental and the third-party teachers, achieved roughly 1.2 million registrations.

DONUT a series of game-based like mobile learning apps for children recorded over 33 point million downloads. I guess it was successfully launched in New Oriental today as a pilot program. Le Ci, an English program language vocabulary training app for mobile phones and tablets approximately recorded about 3.5 million users by quarter-end.

And also we’re thinking of the best ways to make the best use of these resources in these pools in the days to come. So turning to the third level, of our online education ecosystem, we invested in select online education companies with a minority stake. So in September 2015, we invested [indiscernible].com which is complementary to our K-12 business.

[indiscernible] is online platform that provides personalized education for K-12 students, to offer teaching, learning products by level, by subject, through animation videos, so interactive practice tools and question bank. So currently it has 15 million accumulative unique visitors and 2 million daily active users.

So, together with our previous investments in Kouyu100.com, Alo7.com, Juesheng.com, Golden Finance and Robotron, [ph] we are now on the right track of building out our O2O ecosystem and we have created more opportunities to partner with our new online education companies to enhance our product offering and strength our leading position in China’s private education market.

So another note to add here is the Kouyu100.com which we invested in December 2014 and was listed in China’s New Third Board in December 2015, which is an over the counter market for growth enterprises. So that’s basically what I’ve got to say. Now, I will turn the call over to Stephen to discuss the key financials and outlook.

Stephen?.

Now, let me walk you through the key financial details for the second quarter. Operating costs and expenses for the quarter were $288.5 million, a 16.2% increase year-over-year. Non-GAAP operating costs and expenses for the quarter which exclude share-based compensation expenses were $283.5 million, a 16.2% increase year-over-year.

Cost of revenues increased by 17.3% year-over-year to $134.2 million primarily due to increase in teachers’ compensation for more teaching hours. Selling and marketing expenses slightly increased by 0.3% year-over-year to $44.1 million. General and administrative expenses for the quarter increased by 22.7% year-over-year to $110.1 million.

Non-GAAP general and administrative expenses, which exclude share-based compensation expenses were $105.1 million, a 23% increase year-over-year, primarily due to increase in R&D expenses and human resources expenses related to the development of our outdoor integration.

Total share-based compensation expenses, which were allocated to related operating costs and expenses increased by 16.5% to $5.0 million in the second quarter. Loss from operations for the quarter was $10.4 million, compared to a loss of $11.9 million in the same period of prior fiscal year.

Non-GAAP loss from operations for the quarter was $5.4 million, compared to non-GAAP loss from operations of $7.6 million in the same period of the prior fiscal year. Operating margin for the quarter was negative 3.7%, compared to negative 5.0% in the same period of the prior fiscal year.

Non-GAAP operating margin, which excludes share-based compensation expenses for the quarter was negative 1.9%, compared to negative 3.2% in the same period of the prior fiscal year. Net income attributable to New Oriental for the quarter was $5.9 million, representing a 70.3% increase from the same period of prior fiscal year.

Capital expenditures for the quarter were $11.6 million, which were primarily attributable to the opening of 20 new learning centers and renovations at existing learning centers.

Turning to the balance sheet, deferred revenue balance which is cash collected from registered students for courses and recognized proportionally as revenue as the instructions are delivered, at the end of the second quarter was $586.5 million, an increase of 33.1% as compared to $440.7 million at the end of the second quarter of fiscal year 2015.

Before we move into the Q&A session, let me go through our expectations for the third fiscal quarter. We expect total net revenues to be in the range of $328 million to $339.5 million, representing year-over-year growth in the range of 14% to 18%.

If not including the impact from the recent RMD depreciation, the projected revenue growth rate is expected to be in the range of 20% to 24%. This forecast reflects New Oriental’s current and preliminary view, which is subject to change. Now at this point, Joe and I will take your questions. Operator, please begin..

Thank you. [Operator Instructions] The first question comes from the line of Julia Pan from Macquarie. Please ask your question. .

Hi Stephen; hi Chenggang, congratulations on the strong result in this quarter. I have two questions.

Could you please give some color on a margin outlook in fiscal year ‘16? Is this going to still be flat or a little bit increase? And also why the tax rate is low at 6% in this quarter? And also could you please tell us what the market share of EDU has in after-school tutoring market now and what’s your outlook for the consolidation of education industry in the future? Thank you very much..

I think your first question is about the margins of fiscal year ‘16. I just [indiscernible] the operating margin for the whole fiscal year of ‘16 about the -- I think the margin will be flat in the whole year.

For the offline schools, we’re happy to see the margin improvement because the leverage, you can see in the Q2 numbers, the revenue was up by 17% without any new learning centers. But we’re still in the investment phase. Based on the budget we will spend $15 million, within this year. So, that’s why I guide the margin will be flat.

Your second question is about the tax rate. The Q2 is still the lower season for the profit. And I think the each year for the first and second quarter accumulated potentially is about 11.8%; for the whole year, it should be 12% to 13%. And your third question is about market share.

We are the number one player in the whole market for K-12 after-school tutoring business. But I think the market share occupied by New Oriental is only 1% to 2%. It’s huge market; it’s very fragmented. So, about the potential consolidation, yes, we’re taking more market share, as you saw very strong student enrollment growth.

And I think in the future, we will take more and more market share..

Yes. And also I think the existing market of cities, New Oriental holding, we’re still having quite a lot like room for improvement in some of the existing cities. So, as the time passes, our performance probably will be better and the results would be better. So including -- not including the cities probably we’re expanding in the days to come..

The next question comes from the line of Cynthia Meng from Jefferies. Please ask your question ma’am..

This is Annie Xu [ph] and I’m asking on behalf of Cynthia Meng. I have two questions about EDU’s results.

The first one is, given the lower blended ASP in 2Q ‘16, is the higher gross margin a result of higher utilization rate, and what is the utilization rate in the second quarter of 2016? And also my second question is, could you give us some color about the ASP trend of U-Can, POP Kids, overseas test preparation and the domestic test preparation as well as comprehensive English business respectively in fiscal year ‘16 compared to last year? Thank you..

Okay. The utilization rate of New Oriental is half in second quarter because our student enrollment dropped by 35% year-over-year, without new learning centers and the utilization rates is 20% in Q2. The Q2 last year was 18%, so that means 200 bps up. And for the ASP, I think I will rather spend more time to explain the ASP.

The enrollment for Q2 is 35% and the cash revenue is 28%. So if you do the math, it is 7% ASP down that is per program. There were four reasons. First reason is the early registration for the K-12 business. We moved the enrollment window for K-12 from December to November. And as you know, the winter class is shorter than the autumn class.

So, this is the one reason, the impact to the ASP. The second reason is that we changed class lengths for POP Kids program in some cities. That means now we have more shorter POP Kids classes. The third one, the VIP revenue contribution is decreasing. The VIP revenue contribute 30% of total revenue.

In the Q2, it was only 9% growth, so it strikes the ASP. And the number four reason is the exchange rate, we have the negative 4% due to the RMB depreciation. So, I will give you the hourly rate. It’s not the price per program, it’s the hourly rates. In U.S. dollar term, it increased about 2% in second quarter.

If you take away in RMB term, it’s 6% for ASP. So in the longer term, I think we will increase the price by 5% to 10% year-over-year for the price. That’s my answer..

The next question comes from the line of Anne Shih from Brean Capital. Please ask your question..

I just have some follow-up questions on the margins and the ASP. Could you just provide me some details on the cost efficiencies and then flat margin for the full fiscal year? I was just wondering, given lower O2O spending for next year, should we also expect more rapid recovery to normalize margin levels? And then second, on the blended ASPs.

Could you also discuss the Company’s pricing strategy for promotions, particularly in K-12? Thank you..

About margins, yes, we’re seeing the margin improvements in this fiscal year. And yes, we will spend $50 million on investments for O2O and pure online. And so that’s why I guide the margin will be flat within this fiscal year. And next year, I think we will cut some investment money we have compared to this year.

So, we don’t have the budget till now but I think the number of the investments, the money we spend in next year should be lower than this year. So, the margin will be higher next year..

That means as we promised before, we’re going to invest more money, the $50 million like in the investment and improve our infrastructure, the online offline system.

When the structure’s ready, we’ll save some money and probably for the development -- for the sustainable development, so the performance or the figures, the numbers will be much better..

So in the longer term, in next three to four years our margin, operating margin target will be 17%-18%.

What’s your second question, Anne?.

And the second question was related to promotions and pricing for the K-12 segment..

Yes, we did some promotions for K-12 that is in some big cities like in Beijing, Wuhan but I think very minimal. Because we give some very lower price classes in our grade one and grade seven, so it’s the entrance class, so it’s the small part of the business. And for all the other grades except for grade one and grade seven, the prices are as normal.

All these classes I believe are basically to check like more customers like for the promotion and marketing only..

And actually we did more promotions but pricing in Q1 which is the entrance point for the whole year registration. But in the rest of the year, we will -- we won’t do a lot of pricing promotion. And also for the whole year, our pricing strategy for K-12 is to take up the hourly rate by probably controlled within 5%.

So, this is our current pricing strategy. Going forward, we have more pricing power to take up the price..

The next question comes from the line of Fan Liu from Goldman Sachs. Please ask your question..

So, I have two questions. Number is about learning center expansion. So, year to date actually we haven’t really added much learning training centers, so what’s your guidance for the rest for the year and maybe -- and also for the coming fiscal year ‘17? And also second question about your O2O investment.

So, you have mentioned you are still on the check [ph] for the whole year for stimulating [ph] U.S. dollar investment. May I know how much have you spent in the first half on O2O? These are my questions, thank you..

In terms of the expansion plan, our learning center decreased by 1 in Q2 but we add net 14,000 square meters in capacity for the current learning centers. We closed some small learning centers due to the leasing contract expired and then opened big learning centers nearby.

So, and for the rest of the year what I mean is in the Q3 and Q4, we plan to open the learning centers below 10. What I mean is net increase. And for the next year, I think we will increase the 30 learning centers. So compared to the 720, we have 4 or 5%.

And for the O2O and pure online investment, in first quarter, we spent $10 million and in the second quarter we spent $13 million, so $23 million we spent in total, for the first half of the year..

The next question comes from the line of Yoon Jin Kyu from Mizuho Securities. Please ask your question..

Very quickly on the enrollment, you said that enrollment grew this quarter largely due to the fact that there was a bit of a pull forward demand due to early enrollments, and that’s largely due to the fact that the students demanded that.

I guess why this quarter; what -- is this a recent like a new phenomenon that we haven’t seen in the past? And so, when we see kind of a pull forward demand on enrollment, what should enrollment look like this quarter and then the subsequent quarters going forward? Can you just kind of give an outlook on just kind of how we should be modeling for that?.

I think it’s not the first time. If you’re recalling numbers six months ago, we had very strong student enrollment growth in Q4, in Q4 ‘15. I think the new O2O product is very popular in market. So, the students wish to enroll the class as early as they can to secure the class seat. And so that means we have the early enrollment.

So, if you build up your model as normal level, I think the student enrollment should be referring 35% increase year-over-year. .

That’s 30% to 35%?.

Yes for K-12..

Got it. And is there -- and you mentioned O2O is driver for that.

Is there a particular seasonality that we should look at in terms of fourth quarter and this quarter or is it going to be just 30% to 35% for the next few quarters going forward?.

No, I think -- what I mean to say, if you build up your model in the Q2 and Q4 going forward, you use to build up the higher selling enrollment growth.

So for the next year, the whole year, you should build up the model for the K-12 business, the student enrollment growth should be like 20% to 25% and for the O2O business 15% to 20% student enrollment growth..

Yes, so the timing difference is only for current fiscal year..

Yes. .

It’s not for next year..

The next question comes from the line of Tian Hou from T.H. Capital. Please ask your question. .

The question is related to your investments. You previously announced joint venture with Tencent to develop mobile internet education; I wonder what’s the progress on that front. Also you also mentioned the Kouyu100.com and it has already been treated under OTC, over the counter market in China.

So, I wonder such kind of arrangement, one of your assets is invested in the local market, how the shareholder and EDU benefit from such arrangement? That’s my question..

We made a lot of investment during past two to three years and the target company we think for is if we can find the synergies between New Oriental and the target companies, we’ll do the investment.

For example for the Kouyu100.com, the customers like the grade 6 to grade 8, the students -- for the K-12 students and they are the students of -- they study our English online. And so we can make lot of the cross selling from their customers -- to their customers for our K-12 class provided by New Oriental.

So this should be the key factor of our investment logic..

So basically that means that the companies should be compatible to each other with each other. And we can make best uses of the resources of each other’s pool and that we can support each other..

So with that joint venture with Tencent, what’s the progress on that one?.

We settled the agreement in last year and we launched the product. To be frankly, I think both on the registered users and the revenue should be in the more improvement, so just we have more time..

It’s moving on smoothly, still waiting for the final result..

The next question comes from the line of Alvin Jiang from Deutsche Bank. Please ask your question. .

I have two questions. The first question is on the performance of U-Can and POP Kids. I noticed that in recent past quarter U-Can actually outperformed POP Kids.

Can you share any color on this, maybe this is coming from EPS deployment or any other improvements of U-Can? And my second question is on the price cannibalization because I noticed that Koolearn actually has a very robust growth in terms of rapid traffic but actually revenue growth decelerated.

So, I’m not sure if you introduced some new subjects, maybe diluted price or any other insights by you will be very helpful. Thank you..

I think we’re seeing the boost in enrollment growth both U-Can and POP Kids but I think the U-Can is better than the POP Kids because U-Can is more -- the courses [ph] of U-Can are more missing critical, with a high price for these students. But going forward, both the U-Can and POP Kids will be as strong as this quarter, maybe a little bit better.

And for the cannibalization for the online, you named the Koolearn, this quarter the Koolearn revenue was up by only 19%. I think this is due to the two reasons. The first one is the two businesses decreased in Q2 for Koolearn, but it shrinked in last summer quarters. Now it’s come for like the 15% to 20% of the total revenue.

But on the other hand, the two, three [ph] business increased by 45%. And the second reason for the peak season for the Chinese GRE [ph] should be the third quarter. So in the coming quarter what I mean is in Q3, you will see the very strong GAAP revenue growth for koolearn.com..

The next question comes from the line of Mariana Kou from CLSA. Please ask your question. .

I just have two questions, I think one is actually back to the market share question, one of asked. I think the market share overall for the country definitely very low like 1% to 2%; there is a lot room to grow. But I was just wondering if you have any data on maybe the top tier cities, the Beijing and Shanghai.

What sort of market share are we thinking in terms of -- any ballpark numbers would be helpful? And the second question is a little bit more on [indiscernible] question really. If you could share a bit more color on the investment portfolio or like any sort data that you could help us think about interest income.

I know the market is definitely quite volatile at the moment and the interest income actually is quite a significant portion of the market. So, if you could just give a little color there, it would be helpful. Thank you..

In terms of the market share, we also have only 1% to 2% of the K-12 market. In some big cities like in Beijing and Shanghai, I think the numbers should be higher than 1% to 2%. But I’m not sure I have the idea about the detail numbers..

And by the way, the market share for K-12, this is very huge and fragmented market, and in oversea test prep we’re dominating..

And so your second question is about the interest income. All the interest income we made has come from the -- like the bank deposits or the treasury products we bought in banks. But the bank will 100% fully -- what I mean is principal and interest income is 100% protected by the banks.

But the average interest rate of this year should be lower than last year..

Because of the government’s policy..

Yes. It’s not only because of the policy but because of market needs. But anyway, you will see the interest income increase a little bit..

The next question comes from the line of Joe Zhao [ph] from Credit Suisse. Please ask your question..

Two questions from me, one follow-up from the previous question on the promotions. You mentioned that you’ve done like promotions on grade 1 and grade 7 products in Beijing and Shanghai.

I just wonder like which courses are you promoting on; in addition, do you book the promotion spending on sales and marketing expenses or on the net of revenue basis? And the second question is can you share a little bit about your K-12 enrollment growth exposure, which provinces do you the most rapid growth among all? Thank you..

For the promotions, we provided some promotions for the grade 1, grade 7 for some like the maths and physics and chemistry for the courses. And as Sisi said, we meet once a year, typically in the summer to get more new students..

Yes, we’re doing this to demonstrate, to show the quality teaching and all those, our top first class like performance in the classrooms so that we can more students in the coming season..

And to your second question about the K-12 driver, one is that -- the non-English courses grew faster than the English courses. For the U-Can, I think the English courses account for only one-third of the total revenue. So, the non- English accounts for two-thirds; and the non-English grew faster than the English courses.

And for the POP Kids English courses account for 80% of the total revenue and math and Chinese account for 20%; same, the non-English courses grow faster than the English courses..

Yes, because the market potential’s much bigger than the English one..

Right, sorry, just on the regional exposure perspective, like which provinces do you see strongest growth among the all? And also on the first question, I guess a second part, I wonder is that do you book the promotion spending in the marketing spending or on a more like on revenue basis, as it accounts for revenue that kind of measure? Thank you..

Yes, we just account the net of the revenue, not reported the expenses in selling, marketing. And in terms of the different cities, we’re seeing the very strong growth in Beijing, Wuhan, Nanjing, and like Xiamen, Hefei. So, I think it depends on the different management. But I just want to focus on the Beijing numbers.

The K-12 process in Beijing grew very fast during the last three or four years and the trend will be continued..

So, this is basically because of the resources that the different cities they have and also because of the differences of the management, the quality..

The next question comes from the line of Andrew Orchard from Nomura. Please ask your question..

I have a question on the VIP. You noted that one of the reasons why your hourly ASP is down is because VIP’s lower contribution as a percent of your total. So, I wanted to get some idea of why that was the case because; is it VIP is slowing or is it because you’re seeing your other products doing very well? Thanks..

Yes, as you see, as you know, the management made a new policy of VIP. We do like the VIP business; it has the lower margin. And I think the management thinks the small and big class are the suitable class type for the students. So we can -- we just want to cap the VIP business 30% of the total revenue..

I’d say that actually we like the VIP business but it’s quite kicky. So, we also like to keep the balance of the healthiness of the whole development. So, we’ve got to keep the percentage..

Are you actively doing that because I think that there’s a trend that you are -- there’s more demand for more personalized attention, right? So you’re saying we’re just not going to offer it even though there’s demand?.

The market demand is still there. We will still provide the class but we encourage the locals who have to open more small and big classes other than VIP..

We’re now approaching the end of the conference call. I’ll now turn the call over to New Oriental’s CFO, Stephen Yang for his closing remarks..

Okay, thank you everyone. 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 or Sisi. Thank you everybody..

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating, you may all disconnect..