Raffles Education

Kim Eng on 9 Feb 2012


Higher dividend payout declared. Stripping out a one-off gain of $9.0m on disposal of available-for-sale financial assets, Raffles Education Corp’s (REC) 2QFY Jun12 results were slightly below our expectation. Net profit fell by 10% YoY to $3.5m, dragged down by other operating costs arising from property and land use tax expenses of $2.2m during the quarter. Despite the uninspiring results, the group has increased its interim dividend payout to 0.5 cents per share from 0.45 cents last year.


China issues largely behind us. Revenue decreased by 13% YoY in 2QFY Jun12 due mainly to the absence of contribution by Shaanxi Electronic Information Institute and 50% of Zhongfa College (via Value Vantage Pte Ltd) as the group had earlier sold its 100% and 50% interests in these investments respectively. While enrolment numbers in China remained weak given demographic changes and the increase in Chinese students pursuing education overseas, we note that the rate of decline has at least moderated.


Diversification strategy starts to bear fruit. On the bright side, turnover grew by 14% YoY in Asia Pacific (ex-China) to $16.7m, accounting for 45% of the group’s overall revenue. The result has also somewhat validated REC’s geographical diversification strategy as it strives to build a pan-Asian platform through setting up 14 new colleges, mainly in India, over the past three years or so.


Raising the bar. REC recently announced that it has been awarded the EduTrust certification for four years by the Council for Private Education (CPE). Under the new regulation, all private education institutions must be EduTrust-certified in order to recruit international students. This has brought about a consolidation in Singapore’s private education market, thus resulting in a reduced number of competitors for the group.


Maintain Buy. The stock is trading near its NTA per share of $0.51, suggesting that investors are getting REC’s education business at a steal. Nevertheless, we lower our SOTP-based target price to $0.65 following the divestment of certain of its assets in China.