Singapore Exchange Ltd (SGX)

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Asia’s leading multi-asset exchange

SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Equity Bottom-Up

<p><i><b>These equity research reports are not written by the SGX.</b> SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.</i></p><h2>Overseas Education Ltd</h2>
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<p><strong>Hard work pays off</strong></p>
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<p><strong>OEL’s FY19 core net profit of S$8.0m was a slight beat; it rose 15.9% yoy, despite marginally lower revenue of S$82.0m.</strong></p>
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<p><strong>FY19 DPS of 2.75Scts (unchanged yoy) was in line; we expect OEL to maintain this over FY20-22F, translating into 7.5% dividend yield.</strong></p>
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<p><strong>ReiterateAddonearningsgrowth,attractiveyieldandhistoricallowvaluation of 16.8x FY21F P/E (1 s.d. below 4-year historical mean).</strong></p>
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<p><strong>FY19 net profit up 15.9% yoy, above expectations</strong><br>Overseas Education (OEL SP) reported FY19 core net profit of S$8.0m (+15.9% yoy), which accounted for 106%/105% of our/consensus full-year forecasts. The slight beat came from lower-than-expected operating expenses, specifically lower finance costs (recall that its bank loan was refinanced in April 19 at 3.4% per annum instead of the previous interest rate of 5.2%). Revenue was spot on at S$82.0m, with stable student enrolment numbers in 2H19 as the key positive after consecutive declines since FY14.</p>
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<p><strong>Little impact from Covid-19; healthy level of enquiries</strong><br>International schools in Singapore like OEL remain operational despite the onset of Covid- 19, unlike their peers in Hong Kong whose classes remain suspended until at least 16 Mar. News reported that the lack of visibility on HK school reopening could disrupt the entire school year and threaten the departure of a significant number of families. According to the management, the virus outbreak has not caused student withdrawals for OEL, and it continues to see healthy levels of enquiries (since HK protests started in Jun 19). We think OEL’s smaller class size of less than 25 (vs. 30-35 students on average for other schools in Singapore), and a bigger campus help towards lowering exposure to large crowds.</p>
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<p><strong>Still an attractive dividend play</strong><br>The group declared a final DPS of 2.75Scts for FY19, in line with its dividend track record since listing in 2013. This is equivalent to a payout ratio of 143% and a 7.5% dividend yield. With revenue reserves of S$66.5m (as of end-2019), minimal capex needs and projected FCF of S$25m-27m p.a. (FY19: S$27.7m), we believe OEL can maintain its dividend payout at S$11.4m over FY20-21F.</p>
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<p><strong>Reiterate Add with unchanged S$0.42 TP</strong><br>We continue to like OEL for its prudent management, attractive dividend yield and steady earnings growth. We raise our FY20-22F EPS by 0.9-1.1% on the back of higher other income. We reiterate our Add rating and TP, based on 19.5x FY21F P/E which is at -0.5 s.d. of its 4-year mean. Apart from the historical low valuation, we see privatisation potential for the stock given that it is 65% controlled by two significant shareholders. A higher number of foreign students relocating to Singapore is a potential re-rating catalyst. Risks are unfavourable policy changes, rising competition and unexpected dividend cuts.</p>
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These equity research reports are not written by the SGX. SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.Overseas Education Ltd

Hard work pays off




OEL’s FY19 core net profit of S$8.0m was a slight beat; it rose 15.9% yoy, despite marginally lower revenue of S$82.0m.


FY19 DPS of 2.75Scts (unchanged yoy) was in line; we expect OEL to maintain this over FY20-22F, translating into 7.5% dividend yield.


ReiterateAddonearningsgrowth,attractiveyieldandhistoricallowvaluation of 16.8x FY21F P/E (1 s.d. below 4-year historical mean).




FY19 net profit up 15.9% yoy, above expectations Overseas Education (OEL SP) reported FY19 core net profit of S$8.0m (+15.9% yoy), which accounted for 106%/105% of our/consensus full-year forecasts. The slight beat came from lower-than-expected operating expenses, specifically lower finance costs (recall that its bank loan was refinanced in April 19 at 3.4% per annum instead of the previous interest rate of 5.2%). Revenue was spot on at S$82.0m, with stable student enrolment numbers in 2H19 as the key positive after consecutive declines since FY14.

Little impact from Covid-19; healthy level of enquiries International schools in Singapore like OEL remain operational despite the onset of Covid- 19, unlike their peers in Hong Kong whose classes remain suspended until at least 16 Mar. News reported that the lack of visibility on HK school reopening could disrupt the entire school year and threaten the departure of a significant number of families. According to the management, the virus outbreak has not caused student withdrawals for OEL, and it continues to see healthy levels of enquiries (since HK protests started in Jun 19). We think OEL’s smaller class size of less than 25 (vs. 30-35 students on average for other schools in Singapore), and a bigger campus help towards lowering exposure to large crowds.





Still an attractive dividend play The group declared a final DPS of 2.75Scts for FY19, in line with its dividend track record since listing in 2013. This is equivalent to a payout ratio of 143% and a 7.5% dividend yield. With revenue reserves of S$66.5m (as of end-2019), minimal capex needs and projected FCF of S$25m-27m p.a. (FY19: S$27.7m), we believe OEL can maintain its dividend payout at S$11.4m over FY20-21F.




Reiterate Add with unchanged S$0.42 TP We continue to like OEL for its prudent management, attractive dividend yield and steady earnings growth. We raise our FY20-22F EPS by 0.9-1.1% on the back of higher other income. We reiterate our Add rating and TP, based on 19.5x FY21F P/E which is at -0.5 s.d. of its 4-year mean. Apart from the historical low valuation, we see privatisation potential for the stock given that it is 65% controlled by two significant shareholders. A higher number of foreign students relocating to Singapore is a potential re-rating catalyst. Risks are unfavourable policy changes, rising competition and unexpected dividend cuts.














Non-SGX Report: Overseas Education Ltd: Hard Work Pays Off