Noah Education Holdings Ltd. (NED)

F3Q2011 (Qtr End 03/31/2011) Earnings Call

May 13, 2011 8:00 am ET

Executives

Jerry He - CEO

Dora Li - CFO

Analysts

Ella Ji - Oppenheimer Funds

Howard Zhou - Roth Capital Partners

P resentation

O p erator

Good day, ladies and gentlemen, and welcome to the Noah Education's third quarter fiscal 2011 financial results conference call. (Operator Instructions) Joining the conference today are Mr. Jerry He, CEO; and Ms. Dora Li, CFO.

After the U.S. markets closed yesterday afternoon, Noah issued a press release announcing its third quarter fiscal year 2011 financial results. The release is available on the company's IR Web page at ir.noahedu.com.cn, along with the presentation for today's call. This call is also being broadcast live over the Internet.

Before management's presentation, I would like to refer to the Safe Harbor statement in connection with today's conference call. This call may contain forward-looking statements within the meaning of the Private Securities Litigation and Reform Act of 1995, including certain expectations and goals which are subject to numerous assumptions and risks.

Forward-looking statements involve known and unknown risks and uncertainties, many of which are beyond our control which may cause actual results to differ materially from any future results or achievements implied by such forward-looking statements.

The company's actual results could differ materially from those contained in the risk factors section of the company's final prospectus or recent filings filed with the Securities and Exchange Commission. Unless required by law, the company undertakes no obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

I would now like to turn the call over to Noah's CEO, Mr. Jerry He.

Jerry He

Thank you for joining us today on our third quarter fiscal 2011 result conference call. As you may have seen from our earnings release, our Education Services business continue to flourish during the quarter with revenue from this segment growing 115.5% year-over-year and the net income revenue and factor added 158.2% as our financial results as a group.

We were impacted by the performance of our discontinued ELP business. We are on track to complete the sale of this business by the end of this month. The disposal of the ELP business will not only enable us to focus on our strategic growth areas, but also strengthen our balance sheet and better support our cash flow levels going forward.

With the divesture of our ELP business at an advanced stage, our focus is on our education services segment. We are actively pursuing special opportunities within our existing brands and expect the number of Wentai Education Schools and their management to be at least 20 by the end of calendar year 2011, double of what it was when we completed the acquisition in July 2010. We look forward to taking advantage of future opportunities to expand the Wentai brand both of acquisitively and organically.

We also continue to execute our strategic imperative of acquiring complementary business. Last month, we entered into a definitive agreement to purchase 80% interest in kindergarten operator Yuanbo Education. We are confident the combination of the capital injected into Yuanbo Education as part of the acquisition. Together with our extensive education service and management experience, we lead today the continued growth of this business and making accretive through earnings in the fiscal ending June 2012.

I will give you a bit more color on our progress with both Wentai and the Yuanbo Education in just a few minutes. Before handling over to Dora, to walk through our financial results, I would like to reiterate there is a world opportunities that exists within China's fragmented and nascent education service market.

There is (inaudible) disposal of the ELP business. We are even more intensely focused on capitalizing our opportunities that exist within this fast growing market. Our strong balance sheet with cash, cash equivalents and short-term investments of US$75 million at end of the March support our financial strength to take advantage of opportunities as they arrive.

With that, I will now turn the call over to Dora to walk you though the details of financial performance for the quarter.

Dora Li

Thank you, Jerry. As shown on Slide 3, net revenue in the third quarter was down 71.3% year-over-year to RMB72.7 million due to ongoing challenges within our ELP business. However, as Jerry just mentioned, we continue to see a strong performance from our education service business with revenue of RMB23.1 million directly exceeding our guidance. This growth represents a 115.5% increase from the third fiscal quarter of 2010.

Taking a closer look at the segment on Slide 5. You can see its performance was supported by the contributions from Wentai education, which is fueling our growth as new schools come on board as well as stable performance from Little New Star.

It is important to highlight that in addition to expanding our education service revenues we are also driving profitable growth within our continuing operations. As we have mentioned before, one of our strategic reasons for pursuing the education service base is because of the visibility and more attractive margin profile of this business with year-over-year net income growth of 158.2% outpacing topline expansion this quarter. You can clearly see that we are capitalizing on this favorable industry trends.

Additionally, turning Slide 6, operating margins rose from 18.3% in first quarter of fiscal 2010 to 26.6% this quarter. Thanks to the increased contribution from Wentai and our efforts to maintain a lean operation structure, while net margin expanded to 23.5%.

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