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

OVERSEAS EDUCATION LIMITED RQ1.SI

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.

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.

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