Overseas Education Ltd
Slightly thwarted by personnel costs
▊ OEL’s 9MFY13 core net profit was slightly below our expectation at 71% of our FY13 forecast but above consensus at 78%. However, 9MFY13 sales were in line, at 76% of our FY13 forecast and 73% of consensus. OEL has commenced construction of its new campus. OEL’s 9MFY13 core net profit was slightly below our expectation, at 71% of our full-year forecast. Personnel costs were again to blame for the variance. We cut FY13-15 core EPS by an average of 4.4% to reflect the higher personnel expense trend. We roll over to CY15 and raise our DCF-derived target price to S$1.08 (WACC 8.1%). Maintain Outperform, with the completion of the new campus as a catalyst.
Watch personnel costs
OEL’s 3QFY13 revenue grew 5% yoy, driven by the growth in tuition fees. Operating expenses rose 2.2% yoy in 3QFY13. Personnel costs, which accounted for 75% of total operating expenses, rose 6.4% yoy in 3QFY13 due to salary adjustments and the increases in headcount for both the administrative and academic staff.
OEL has commenced construction of its new campus at Pasir Ris. The campus is slated for completion by end-Apr 2015. The current budgeted cost for the construction is S$233.5m (subject to adjustments).
Funding decision in FY14
OEL only has to decide on the exact mix of debt-equity financing in 1QFY14. Given that OEL runs an education business, its funding preference is likely to be skewed towards a mix of internal cashflow and new equity. This will reassure parents that OEL does not face any financial distress. We believe that OEL’s major shareholders are prepared to accept a dilution in their shareholding as long as they remain in control.