Overseas Education Ltd - Maybank Kim Eng 2015-11-12: Difficult Start to the Year

Overseas Education Ltd - Maybank Kim Eng 2015-11-12: Difficult Start to the Year OVERSEAS EDUCATION LIMITED RQ1.SI 

Overseas Education Ltd - Difficult Start to the Year 

  • 3Q15 below expectation. Net profit plunged 67% YoY because of a sharp fall in the number of students, combined with additional fixed expenses related to the new campus. 
  • New student enrolment expected to remain weak. We cut our FY15-16 EPS by 22-29%. 
  • No catalyst in the mid-term. Maintain HOLD with DCF-based TP cut by 11% to SGD0.65 (9.1% WACC, 1% Tg). 

What’s New 

  • 3Q15 results were below our expectation. 
  • Despite the 10% increase in tuition fees, revenue decline 6% YoY because of a sharp drop in the number of student enrolments, especially in the Junior grades. 
  • We estimate that OEL will lose a total of 1,170 students this year. 
  • We lower our number of student enrolments to 2,450- 2,890 for FY15-17 (vs 2,670-3,000). 
  • Registration fees fell to SGD0.2m as new student enrolments were only 120 (one-off SGD2,000 fee for first-time students) vs. our already-low forecast of 140. 
  • 3Q15 net profit plunged 67% YoY to SGD1.7m (vs. our forecast of SGD3.7m), due to the drop in revenue, combined with higher depreciation and interest expenses. 
  • OEL recorded depreciation and interest expenses of SGD3m and SGD2m in 3Q15, related to its new campus in Pasir Ris. 
  • Personnel expenses-to-revenue jumped from 56% in 3Q14 to 63% in 3Q15. 

What’s Our View 

  • As the pool of expatriates is contracting in Singapore, we expect the net addition of students to be negative next year. 
  • We do not see any catalyst in the mid-term, as the economic outlook remains weak. 
  • We cut our FY15-16 EPS by 22-29% to reflect the lower student numbers. 
  • Our new DCF-TP is SGD0.65 (9.1% WACC, 1% LT g) from SGD0.72, equivalent to 21x FY16 PER. 
  • Maintain HOLD.

Truong Thanh Hang CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2015-11-12
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintaion HOLD 0.65 Down 0.72