We Raise TAL Education's FVE to USD 5.60 After a Fresh Look

We raise our fair value estimate to USD 5.60 from USD 3.06 after a fresh look at TAL Education, or TAL. We think there is better visibility now after its first quarter of results without the contribution from the K-9 academic afterschool tutoring business. No doubt that revenue will plunge in 2023, but we expect it to rebound to 38% of the 2022 level by 2027 as the new businesses grow. We forecast TAL to turn profitable in 2025 as operating expense ratio improves. Our fair value estimate translates to USD 3.6 billion equity value, about 4% higher than the net cash and investment position. The current share price is 18% lower than our fair value estimate, but we prefer a higher margin of safety given business uncertainty is very high.