Analyst Note
| Cheng Wang, CFA, FRM, CAIA |We keep our fair value estimate at USD 5.60 following TAL Education’s, or TAL’s, in-line fiscal 2023 (February year-end) second-quarter results. It’s good news that TAL managed to break even in the quarter, and we think market reaction, with TAL’s shares up 10%, reflects increased confidence in its business transformation. June to August is typically TAL’s peak quarter, and TAL is likely to record sequentially lower revenue and return to losses in the November quarter. We keep our 2023 revenue estimate at USD 935 million, but we increase our loss estimate to USD 98 million from USD 86 million after factoring in higher operating expenses. We expect TAL to turn profitable in 2025 as businesses scale up. TAL still trades at a 22% discount to our fair value estimate. The current USD 2.8 billion market cap is about 8% lower than its USD 3.1 billion net cash position as of August 2022. While the net cash position should support TAL’s share price, New Oriental Education is our preferred pick given its better near-term earnings prospects.