■ We D/G to HOLD from BUY and cut forecasts due to a lack of upside share catalysts and the lacklustre business outlook.
■ Departures are up and new enrolments down thus far in 2015 and unlikely to pick up next year, though fees are rising. Accordingly, we have cut our enrolment forecast.
■ The bottom line impact is a 17-29% cut to our FY15-17 EPS estimates. We also lower our DCF-based TP 34% to SGD0.72.
Issues Continue After Move to Pasir Ris
We recently visited OEL and according to management, the number of students returning to their home country continues to increase. This is a trend that has accelerated in the last few months. Enrolments have been weak this year, down 17% YoY in 1H15, and will be about 700 vs. 900/yr during FY13-14. Accordingly, we revise down our number of enrolments to 2,675- 3,000 for FY15-17 (from 3,140-3,100), but still expect a 3.5% increase in tuition fees. Our channel checks show that “first-tier” schools still operate at full capacity with waiting lists, suggesting sluggish expatriate arrivals has more impacted “second-tier” schools like OEL.
Some industry players, such as Australian International School and German European School are expanding their facilities expecting an increase in demand. However, if the number of expatriate arrivals remains sluggish, there could be industry over-supply.
No Short-term Catalysts; Downgrade to HOLD
In absence of catalysts and a poor economic outlook, we downgrade the stock to HOLD from BUY. We also cut our EPS estimates by 17-29% for FY15-17. Our new DCF-TP of SGD0.72 (9.1% WACC, 1% growth) is down from SGD1.09 (6.8% WACC, 1% growth). This is equivalent to 18x FY16 P/E and 15x FY17 P/E. (Read Report)
Source : Maybank Kim Eng Research