Overseas Education Limited - RHB Invest 2015-11-12: Skipping School Again

Overseas Education Limited - RHB Invest 2015-11-12: Skipping School Again OVERSEAS EDUCATION LIMITED RQ1.SI 

Overseas Education Limited (OEL SP) - Skipping School Again 

  • Despite our contrarian SELL call, 3Q15 results were significantly below our estimate – 3Q15 profit fell 67% YoY due to higher utilities and depreciation expenses from the new campus. 
  • Revenue from tuition fees continued declining, signifying much lower enrollment numbers as it raised tuition charges for the current academic year (2015/2016). 
  • Due to the weaker results and challenging landscape, we maintain SELL with a lower DCF-derived TP of SGD0.51 (from SGD0.70, 15% downside). 

 Fewer students, less revenue. 

  • During the quarter, revenue from tuition fees fell 5% YoY to SGD22.5m despite higher tuition charges while registration fees dropped 34% YoY. Weak student enrollment numbers may persist into FY16, as the industries that have a high expatriate ratio such as finance and oil & gas continue to contract in Singapore. As it stands, 60% of the students dropped out due to their families relocating. 

 Higher depreciation and utilities. 

  • While we expected higher utilities expenses due to its larger school compound, Overseas Education’s depreciation expense was higher than expected. 3Q15 depreciation soared 205% to SGD2.7m. 
  • Compounded with lower revenue, 3Q15 net profit fell 67% to SGD1.8m. 

 Special dividend. 

  • To commemorate 24 years of success at the Paterson Road school and the successful transition to the new school, the company declared a special dividend of 1.4 cents per share, payable by 27 Nov. 
  • Shareholders listed in its registrar 5pm on 19 Nov 2015 will be entitled to receive it. 

 Maintain SELL on a challenging outlook. 

  • At the moment, we do not see any catalyst for an increase in expatriate numbers in Singapore. In view of the challenging operating environment, we cut our FY15FFY17F profit by 18-20%. 
  • As a result, our DCF-derived TP drops to SGD0.51, implying 14x FY16F P/E. 
  • We maintain our SELL recommendation on the stock.

Juliana Cai RHB Research | http://www.rhbinvest.com.sg/ 2015-11-12
RHB Research SGX Stock Analyst Report SELL MAINTAIN SELL 0.51 Down 0.70