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).

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.

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.

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.

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