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).

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.

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