Maybank Kim Eng 2015-08-14: Overseas Education Limited - 2Q15 in line; Year of Gestation. Maintain BUY.


Year of Gestation 

  • 2Q15 in line. Revenue & EPS down 5% YoY, as expected. 
  • Lost 230 students this year, from move to Pasir Ris & family relocations. Cut EPS by 8-15% after guidance. 
  • Maintain BUY with DCF TP down to SGD1.09 from SGD1.27 after EPS cuts. 
  • Still expect catalysts from higher enrolments. 

1H15 in line; guided for weaker 2H 

  • 2Q15 results were in line, with 1H15 EPS at 43% of our FY15F. We were expecting a stronger 2H15. 
  • YoY declines were no surprise, as OEL lost a few hundred junior students at the beginning of the 2014-15 academic year. 
  • The second semester – captured in 1H results - is usually quiet, as tuition-fee hikes and new enrolments remain the same. 
  • OEL has enrolled about 500 new students for the 2015-16 academic year, which started on 11 Aug 2015. However, it has guided for a smaller number of students this year, as: 
    1. about 230 junior students have left, following its move to Pasir Ris; and 
    2. another 460 students from all levels have left with their families’ relocations from Singapore. 
  • While OEL faces less competition in the east, the global economic slowdown has contracted the pool of international students in Singapore. 

Assumptions revisited 

  • We have amended our enrolment assumptions to reflect guidance. 
  • We now forecast a drop from 3,250 last year to 3,025 in FY15, rather than an increase to 3,450. 
  • However, we believe enrolments will gradually return next year, when OEL settles down at its new campus. 
  • We still forecast YoY growth, though we are expecting smaller increases to 3,150 in FY16 and 3,250 in FY17 vs 3,575 and 3,700 previously. 
  • We cut FY15-17 EPS by 8-15% accordingly and our DCF-based TP to SGD1.09 (6.8% WACC). 
  • We continue to anticipate 3.5% pa tuition-fee increases, in line with the industry. 
  • This should support EPS growth of 5-13% over the next few years.

Truong Thanh Hang | http://www.maybank-ke.com.sg/ Maybank KE 2015-08-14
BUY Maintain BUY 1.09 Down 1.27