Shares of New Oriental Education & Technology Group Inc. lost nearly 30 percent of their value in late morning trading after the Chinese education company said the Securities and Exchange Commission was probing its business and said the slowing Chinese economy would crimp its growth.
New Oriental said the SEC told it on July 13 that it was investigating. The company believes the probe relates to whether a company in which it has a stake, Beijing New Oriental Education & Technology Co., was properly included in its financial statements. New Oriental said it plans to cooperate with the SEC in the investigation.
William Blair analysts Brandon Dobell and Thomas Dillon said that the SEC investigation may spook investors and isn't likely to be resolved soon.
Shares of New Oriental fell $6.39, or 29 percent, to $15.87, earlier dropping to a to a three-year low of $14.83. Shares of its Chinese competitor TAL Education Group fell 5.8 percent to $9.50.
New Oriental alerted investors to the probe as it released results for its fiscal fourth quarter, which runs from March through May. Net income rose 14 percent to $16.3 million, or 10 cents per American depositary share, from $14.3 million, or 9 cents per American depositary share, a year ago. New Oriental opened more schools and signed up more students for its language training and test prep courses.
Excluding costs for paying employees in stock, earnings were 15 cents per share. Analysts expected profit of 12 cents per share, according to FactSet.
Revenue jumped 41 percent to $193.3 million from $137.4 million as the number of students enrolled rose 7.7 percent to 527,000 and the number of schools and learning centers New Oriental runs grew to 664 from 487. Analysts expected $186.9 million in revenue.
Looking forward, New Oriental expects revenue between $342.7 million to $356.3 million for the current quarter ending in August. Analysts polled by FactSet predict $353.8 million.
New Oriental says its revenue growth is slowing because Chinese consumers who are reining in spending. It's also taking a hit from foreign exchange. New Oriental makes money in Chinese yuan but translates financial statements into U.S. dollar amounts. The company says the dollar's recent climb versus the yuan, which began in April, will hurt results reported in dollars. The yuan had been gaining steadily against the dollar — which means the dollar dropped versus the yuan — since the second half of 2010.