NET profit declined by 10 per cent y-o-y to S$3.5 million while revenues fell 13 per cent to S$36.1 million.
Profit was boosted by non-operating income of S$9 million arising from gain of sale of financial assets in the quarter. Excluding this, we estimate the group would have reported an Ebit (earnings before interest and taxes) loss of S$500,000.
Hence, core earnings were below our expectations on lower revenues and higher operating expenses, particularly staff costs (up 16 per cent to S$16.4 million) and other operating expenses (up 19 per cent to S$19.8 million).
Efforts to reduce reliance on China appear to be paying off. Asia Pacific (ex-China) revenues increased 14 per cent y-o-y to S$16.7 million.
This was, however, offset by a steeper 28 per cent fall in revenues from China to S$19.4 million due to absence of contribution from Shaanxi Electronic Information Institute (100 per cent stake disposed) and Zhongfa College (50 per cent stake disposed), and lower enrolments in its other colleges.
Compared to Q1 2012 (S$35.9 million), revenues were flat, suggesting sequential revenue decline may be flattening out.
Whilst the share price seems to have based out, we believe it is still too early to turn bullish on the counter prior to seeing sustained recovery on the group's core earnings (excluding non-operating income) as costs continue to increase.
We believe it will take a while before investors' confidence returns to this counter. Maintain 'hold' and TP of S$0.48.
HOLD
HOLD
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