TAL Education’s September-November Quarter Beat Expectation; FVE Up to USD 6 Per Share

TAL Education’s, or TAL’s, fiscal 2023 (February year-end) third-quarter results beat our expectations. Revenue was down 21% sequentially due to seasonality but was up 4% compared with the fiscal first quarter despite an unfavorable exchange rate. Based on the better-than-expected results, we assume 7% higher revenue for learning services and 21% higher revenue for content solutions, which lifts our 2023 revenue forecast to USD 1 billion from USD 935 million. We now expect revenue to recover to 42% of the 2022 level by 2027 compared with 38% in our previous forecasts. Accordingly, we increase our fair value estimate to USD 6 per share versus USD 5.60 previously. Although we expect steady growth to continue, the share price is 30% above our fair value estimate, which implies that investors are paying too much of a premium for uncertain growth potential. Based on our estimate, TAL’s revenue must fully recover to the 2022 level by 2027 to justify the current valuation.