OVERSEAS EDUCATION LIMITED
RQ1.SI
Overseas Education - Cash Generative Business Model
Positive free cashflow from FY16F onwards
- Overseas Education (OEL) presents a highly cash generative business, with operating cashflow growing at 10% CAGR over 2010-2015. Though free cashflow will still be negative as a result of the new campus, we expect it to turn positive from FY16F onwards.
Near term hit by drop in enrolment
- Near term, OEL is affected by the withdrawal of students at all levels due to family relocation away from Singapore.
- We cut FY15 enrolment to 3,000 or about 63% of total capacity of 4,800 students for the new campus. This number is also 17% lower than FY14’s enrolment of about 3,600 students. We expect a gradual improvement in enrolment from FY16 onwards.
- Maintain HOLD, TP cut to S$0.71, after imputing lower enrolment and higher costs.
Valuation:
- We use a Discounted Cash Flow (DCF) valuation methodology to capture the cash generative business of OEL in the medium and long term.
- We see tuition fee hikes and gradual improvement in enrolment as the key levers to lift earnings from FY16 onwards.
- Based on our assumptions of 6% weighted average cost of capital on the projected free cash flow forecast, our DCF-derived target price of S$0.71 translates into 18x FY15F PE and 17x FY16F PE.
Risks:
Drop in enrolment.
- Tuition fees forms the bulk of the revenue. A drop in enrolment will result in lower revenue. Operational. Operational. A rise in personnel expenses and retention of teaching staff. Competition. Currently, there are over 30 international schools in Singapore.
LING Lee Keng
DBS Vickers
|
http://www.dbsvickers.com/
2015-11-12
DBS Vickers
SGX Stock
Analyst Report
0.71
Down
0.84
