{ "docId": "019dd923-622c-750b-8b96-0238cb402647", "docSlug": "0900eea60013", "documentTitle": "New Oriental Education & Technology Group (EDU)", "authorId": "51_Muddy_Waters", "authorName": "Carson Block", "documentKindSlug": "research-note", "documentKindLabel": "Research note", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2012-07-18 00:00:00", "orientation": "portrait", "aspectRatio": 0.7070758, "pageNumber": 31, "pageCount": 97, "prevPage": 30, "nextPage": 32, "slideType": "villain_critique", "function": "name_villain", "density": "dense", "nDataPoints": 0, "notes": "The slide uses a skeptical tone to challenge the market perception of EDU's pricing power and competitive advantage.", "elementsJson": [ "paragraph", "quote_block", "footnote" ], "metadataConfidence": 0.95, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b96-0238cb402647/31", "deckHref": "/decks/019dd923-622c-750b-8b96-0238cb402647", "deckJsonHref": "/decks/019dd923-622c-750b-8b96-0238cb402647.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b96-0238cb402647#slide-31", "components": [ { "bbox": null, "kind": "callout", "text": "The reality of business in China – particularly retail business – is that competition is far more deleterious to margins than most foreign investors perceive.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd952-e6ec-7186-b7ca-12f9bb0016c1", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.05, "w": 0.82, "x": 0.09, "y": 0.09 }, "kind": "paragraph", "text": "Equity Option. BIDU's operating company issued BIDU's WFOE an option to purchase its shares when it becomes legal for the WFOE to own the operating company. The term of the option is 10-years.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "29360ccb-2ec3-42d3-8fbd-a61fbaff5e5d", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.07, "w": 0.82, "x": 0.09, "y": 0.31 }, "kind": "paragraph", "text": "While EDU does deliver good education and training to its clients, we believe that actual profit margins are a good deal lower than EDU and most of its peers report. The reality of business in China – particularly retail business – is that competition is far more deleterious to margins than most foreign investors perceive.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "8153efcf-0f36-4385-b66b-fa316955b359", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.07, "w": 0.82, "x": 0.09, "y": 0.6 }, "kind": "paragraph", "text": "EDU has a strong nationwide brand in China, which is built on solid delivery of service. However, that can only give you so much pricing power in this environment. The reality is that most of EDU's sweet spots are commoditized, particularly domestic and overseas test preparation, and adult English.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "c1962d51-f69a-4eaf-8574-eaa07ac2ab00", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.05, "w": 0.82, "x": 0.09, "y": 0.16 }, "kind": "paragraph", "text": "EDU's operating company also issued an option that allows the WFOE to purchase the operating company's equity when it becomes legal to do so. We do not expect the PRC government to make it legal for the listed companies to own either BIDU or EDU's operating businesses anytime soon.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "fd1fdc11-c78d-429e-baf3-8d483df29bd8", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.04, "w": 0.82, "x": 0.09, "y": 0.26 }, "kind": "quote", "text": "'I am in awe of New Oriental's success in a marketplace that fractured, that difficult, that competitive,' The Princeton Review's Kanarek says.", "attrs": null, "subkind": "pull-quote", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "2618234a-d9db-4e0b-bd0e-6965e656c597", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "quote", "text": "\"I am in awe of New Oriental’s success in a marketplace that fractured, that difficult, that competitive,\" — The Princeton Review’s Kanarek", "attrs": null, "subkind": null, "toolName": "Authority citation", "toolSlug": "authority-citation", "confidence": null, "componentId": "019dd952-e6ec-7186-b7ca-157b04b7d93d", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.06, "w": 0.75, "x": 0.09, "y": 0.87 }, "kind": "source-note", "text": "50 Bloomberg BusinessWeek Magazine, May 5, 2011, http://www.businessweek.com/magazine/content/11_20/b4228058558042.htm#p4. 51 http://tinyurl.com/7p924wz (Credit Suisse November 29, 2011 China Education Sector Review) 52 id.", "attrs": null, "subkind": null, "toolName": null, "toolSlug": null, "confidence": null, "componentId": "ddd2a87b-f1ae-4ac2-8fc2-d1f4cd780006", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.02, "w": 0.44, "x": 0.28, "y": 0.23 }, "kind": "title", "text": "EDU and its Public Comps: Too Good to be True", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "8a74785a-e3a6-4c7d-bab9-e724f12f7c7c", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [], "arcBeats": [ { "to": 40, "from": 21, "beatId": "1922d505-6ffb-4f11-b6d1-e58aeb8ad050", "arcName": "Overcoming the Monster", "arcSlug": "overcoming-monster", "beatName": "The Struggle to Uncover the Truth", "beatSlug": "overcoming-monster-the-struggle", "evidence": "The report details the challenges of uncovering the alleged fraud", "position": 2, "confidence": 0.8, "parentBeatName": "Development", "parentBeatSlug": "development" } ], "loops": [], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }