MindChamps Preschool - RHB Invest 2018-04-26: Adding Four More Preschools In Sydney

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MINDCHAMPS PRESCHOOL LIMITED CNE.SI

MindChamps Preschool - Adding Four More Preschools In Sydney

• Yesterday, MindChamps announced the acquisition of four preschools in Sydney, Australia, for a total purchase consideration of AUD12.9m. The acquisition would be funded by a combination of loan and equity.
• Currently the group sits on a cash pile of SGD39.4m. As such, it would still be in a net cash position after the acquisition. We expect the acquisition to be completed in 2H18.
• With the proposed acquisition, we raised our FY18F-20F earnings by 5-8%. This has in turn raised our Target Price to SGD1.00 (from SGD0.95, 23% upside).
• Maintain BUY.

Funding for the acquisitions.

• MindChamps Preschool (MindChamps) announced the acquisition of four more preschools in Sydney, Australia for AUD12.9m. 
• We estimate that about 70% of the total consideration would be funded by bank borrowings and 30% by cash from its IPO proceeds, similar to its previous acquisition structure. Given that the group still has a war chest of SGD39.4m, it would remain in a strong net cash position after this acquisition.

Australia is still a market of focus.

• Our latest conversation with the management suggests that Australia is still very much a market of focus. The group believes that Australia is a huge market with a lot of potential. 
• MindChamps currently has eight preschools in Australia, and two reading and writing classes. We expect the group to acquire two more preschools in FY19F and one preschool in FY20F.

Raising estimates by 5-8% for FY18-20F.

• We raised our estimates as MindChamps has acquired two more preschools than we had previously forecasted. We expect contributions from these four new preschools to be similar to the other four that were acquired last year – this would imply a cumulative P/E of around 11x.

Reiterate BUY with higher Target Price of SGD1.00.

• Our Target Price is based on a blended valuation methodology, comprising 19x FY18F EV/EBITDA and DCF. We raised our Target Price to SGD1.00 on the back of positive earnings impact from the latest proposed acquisitions. 
• The group targets to open its China preschools by Aug 2018. If this materialises, we believe it would lead to further upswing in its earnings.
• Key risks include regulatory risks and overpayment for new acquisitions.

Juliana Cai CFA RHB Invest | http://www.rhbinvest.com.sg/ 2018-04-26

SGX Stock Analyst Report BUY Maintain BUY 1.00 Up 0.950