TAL Education Earnings: Strong Revenue Growth Beats Expectation but Shares Look Expensive

TAL Education's, or TAL’s, fiscal 2024 third-quarter (ending November 2023) result beat our expectation. Revenue in the quarter increased by 61% year on year and was 16% higher than our forecast. We believe this was mainly driven by the exponential shipment growth of its learning tablet. We increase our revenue growth assumption to 40% from 30% for 2024 to reflect the strong momentum. We also raise our gross margin assumption by 100-110 basis points through fiscal 2028 for positive operating leverage. Accordingly, we revise our net loss estimate to USD 52 million from USD 73 million in fiscal 2024, and we increase our net income estimate by 20%-39% from 2025 to 2028. We increase our fair value estimate by 10% to USD 7.70.