Overseas Education Limited -
LAST CLOSE: S$0.755
FAIR VALUE: S$1.16
Defensive education play
We are initiating coverage on Overseas Education Limited (OEL) with a BUY rating and a target price (TP) of $1.16. The defensive education play sparkles amidst volatile investment performances in the climate of macroeconomic uncertainty. OEL is the holding company of Overseas Family School (OFS), a key player in the foreign system schools (FSS) industry with a 10% market share.
Capacity expansion of 22% by 2H2015. Capacity constraints to growth at the Paterson Road campus will be alleviated with the completion of a new Overseas Family School (OFS) campus in Pasir Ris, boosting maximum potential enrolment by 22% to 4,800 students. According to Frost and Sullivan, the student base of the FSS industry will grow at CAGR 8.1% between FY11/12 to FY15/16F and the additional capacity at OFS will help meet the growing demands for FSS school placement.
Sustaining growth in annual tuition fees. OEL has increased its annual tuition fees at least once every couple of years since it began operations in 1991. We expect OEL to sustain further rises in annual tuition fees at CAGR 5% through to 2017 given its strong market positioning and reputation. Furthermore, OFS’s fees are up to 17% below the fees of competitor FSSs.
Dividend policy of at least 50% payout each year. The company’s dividend payout policy of at least 50% of its net profits attributable to shareholders is highly sustainable with the strong operating cash flow generation from the education business.
Buy rating with a $1.16 price target. The defensive nature of OEL’s business model commands a DCF-based TP of $1.16, a 54% upside from its last close. Our TP implies FY14F price earnings ratio of 17.6x.
Publish date: 24/09/13