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Overseas Education: Bringing Out The Value Of Education
Initial Public Offering | 22 February 2013
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By: Choo Hao Xiang
Articles (151) Profile

Since the global financial crisis, education-related stocks have fallen out of favour with investors. Hardly recovered from the battering, shares of Raffles Education Corporation and TMC Education Corporation had lost a chunk of their values over the past five years. But it is a different story for newly-listed Overseas Education.

Up 30.2 percent over the issue price – the gain made on Overseas Education’s trading debut says something about investors’ confidence in the foreign system school despite the caution towards the education sector. The first-day frenzy was not unforeseeable given the overwhelming response from investors during the offering period. The company’s 125 million offer shares were approximately 3.2 times subscribed.

Based on its closing price on 19 February, the first entrant to the mainboard of the Singapore Exchange this year has elevated 25 percent since its 7 February listing.

Back To The Start
Holding a market share of 10.3 percent which pushes the company to the top three foreign system schools in Singapore, Overseas Education has come a long way. The company was established in August 1991 upon founders David Perry’s and Irene Wong’s recognition that there was a strong demand for foreign system education in Singapore. Through its Singapore arm Overseas Family School, the firm commenced operations in September that year, with two blocks of building making up its premises and an enrolment of 130 students.

The count did not stay static. Over the years, the school bolstered its programme range to offer a straight-through K-12 International Baccalaureate (IB) curriculum which is targeted at children aged between 3 and 18 years of expatriate parents who are working and living in Singapore. In 2009, the school integrated the Model United Nations initiative, which seeks to raise students’ awareness of global issues, into the IB curriculum. Overseas Family School believes it is the first and only school in Singapore to do so.

The school’s student enrolment grew by leaps and bounds following the broadening. As at 17 December 2012, the school had 3,753 students. To cater to the influx, the school campuses, which are situated along Paterson Road and Harding Road, have expanded to 13 buildings, extensions and facilities.

More importantly, the increased student enrolment worked well for Overseas Education’s financial performance. Both top and bottom lines exhibited growth in the recent past two fiscal years, with earnings growth at double-digit. The strong set of results were largely driven by an upward fee revision and increased student enrolment. On a year-on-year basis, revenue rose 5 percent to $46.4 million while earnings declined 13.4 percent to $9.4 million for the half-year ended 30 June 2012. Earnings were down due to a more than proportionate rise in personnel expenses.

Plans Ahead
Of the $72 million in gross proceeds raised, Overseas Education intends to channel the net proceeds to finance the construction of a new campus. The expansion will seek to accommodate more students and relieve the pressure on its existing premises, which have nearly reached its full capacity. This development, if successful, bodes well for the company financial performance-wise.

Furthermore, prospects of the foreign system school industry remain positive. According to a report by Frost & Sullivan, the foreign system school industry in Singapore is projected to grow from approximately $866.1 million in 2011 to about $1,430.2 million in 2015. Further reinforcing the positive prospects is a study by HSBC titled “Expat Explorer Survey 2012”, in which Singapore emerged as the most ideal destination for expats.

As the Lion City continues to strive towards being a regional business hub in the East, the population of foreign workforce in Singapore is expected to grow. While there are expectations that additional foreign labour curbs are imminent, the trend was made clearer by the Population White Paper released earlier this month. The non-resident population, which includes foreign workers, is projected to grow from 1.49 million as of June 2012 to around 2.3 to 2.5 million by 2030.

That said, the company still faces the challenges of expanding its foothold regionally to maintain its revenue and earnings growth. Its Hong Kong unit, which was incorporated in 1992, has been dormant.

Plus Point
The most eye-catching piece of guidance provided in the company prospectus is most likely the dividend policy. Overseas Education has set its dividend payout ratio at 50 percent. This means that for every dollar of net profit attributable to the company’s equity holders, 50 cents will be dished out as dividend.

Source: Shares Investment

The company had demonstrated its ability in this aspect. For the recent past three fiscal years, the average dividend payout ratio was above 40 percent. Meanwhile, 41.1 percent of its net profit has been paid as dividend for the period 1 January 2012 to 17 December 2012. Based on annualised earnings for the fiscal year ended 31 December 2012, the dividend yield will be roughly about 5 percent when the issue price is used. This is pretty attractive given that none of its peers has a fixed dividend policy.

Considering how in demand yield plays are of late, it appears that Overseas Education which is seemingly sitting comfortably on its highly-profitable operations in Singapore, has been selected as a candidate of investors’ portfolio for now.

Haoxiang manages and oversees the portfolio of stocks in the consumer goods and hospitality sectors at Shares Investment.

Please click here for more information about this author.

Overseas Education  0.280 -0.005 -1.75%   
Business: Co operates a private foreign system school in Singapore. [FY18 Turnover] Tuition (96.7%), registration (1.4%), school shop (0.7%), enrichment programme (0.7%), interest & other (0.5%).

Insight: May-19, 1Q19 revenue slid 3.4% mainly due to weake... Read More
Raffles Education Corp  0.075 +0.002 +2.74%   
Business: Co is the largest private education group in Asia-Pacific. [FY18 Turnover] Education (81.6%), education facilities rental service (13.6%), real estate investment (4.8%).

Insight: Feb-19, 1H19 revenue fell 0.3% to $48.7m due to ch... Read More
Global Dragon  -- -- --   
Business: Provides training & education courses offering tertiary diplomas, degrees & Master degrees.

Insight: Feb-19, 1H19 revenue jumped 167.8% mainly due to t... Read More

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