Overseas Education Limited

1H Result as at 30 Jun 2020
Rev $40m (vs 39m)
Profit before depreciation and amortisation $14m (vs 11m)
NP $5m (vs 3m)

The COVID-19 pandemic has significantly impacted the global economy. In addition, with shutdown measures and travel restrictions still in place for many countries, the Group foresees the student enrolment for the next school year starting August 2020 may also be affected.

Our government’s advice is to expect COVID-19 to be around for some time. The Group needs to enhance the delivery of our quality school programmes and effective learning support to the student body whether in school or distance-learning so that our students can achieve the required learning outcomes and progression. The Group is also challenged to increase our student recruitment efforts and to develop more recruitment channels to attract student enrolment.
https://links.sgx.com/FileOpen/OEL%20-%2...eID=627828

Stay home and stay healthy, everyone.

It is already mid August, but OEL's management did not provide any specifics on how its present semester's enrollment will be affected.

It's 'fees received in advance' which fell from $16m -- in June 19/18/17/16 -- to $6m for the latest period, may be a possible indicator of the situation.

Shareholders may also be wondering if a reduction in revenue or enrollment will put OEL in danger of breaching its loan covenants.

(15-08-2020, 03:21 PM)karlmarx Wrote: It is already mid August, but OEL's management did not provide any specifics on how its present semester's enrollment will be affected.

It's 'fees received in advance' which fell from $16m -- in June 19/18/17/16 -- to $6m for the latest period, may be a possible indicator of the situation.

Shareholders may also be wondering if a reduction in revenue or enrollment will put OEL in danger of breaching its loan covenants.

Yes, that's indicative of their student admission for the next academic year which does look bad.

Their 10% yield has been a lure. While a step down in interest expense and the repayment of debt will see some growth in earnings for the next few years, the uncertainty over future student admission is still too big a risk.

I view OFS as a "waiting school" for the better ones. If you look at the top few schools and estimate their spare capacity, it will take a couple of years before those capacity is being filled assuming current rate of new Employment Passes being issued. This is also not including the risk of higher drop outs imposed from the economic challenges of COVID19. Operating leverage is going to hurt. Management will cut teaching staff again to adapt but how much more can they go? This is not just cutting operators in a manufacturing line.

Retrospectively, even if one managed to buy the lowest price when OFS reported their lowest profits, you still just be barely breakeven after collecting three years of dividends.

To me, this sounds like a value trap.

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China Maple Leaf Educational Systems Ltd has agreed to acquire Canadian International School (Singapore) valued at S$680 million...
https://www.straitstimes.com/business/co...e-for-680m

I presume the S$680m valuation in this deal includes taking over the acquiree's existing debts. This kind of trade sale deal is indicative of the real value of OEL.

Latest (31Dec22) MOM foreign workforce numbers..
https://www.mom.gov.sg/documents-and-pub...ce-numbers
The EP (Employment Pass) number rose sharply to 187,300 (+15.8% YoY) in 2022, and looks set to hit the pre-Covid (Dec19) high of 193,700 in 2023. This should lead to more foreign students/children brought in by EP holders.

Of course, some foreign students come to study in SG on their own without their parents, and the EP number does not capture those well-off families who just like to stay and let their children study in SG, without seeking employment.

(16-03-2023, 10:16 PM)dydx Wrote: The EP (Employment Pass) number rose sharply to 187,300 (+15.8% YoY) in 2022, and looks set to hit the pre-Covid (Dec19) high of 193,700 in 2023. This should lead to more foreign students/children brought in by EP holders.

# of EP isn't a good proxy for more foreign students or children. 

Anecdotally speaking, the number of single EPs outweigh EPs with families. 

In my company, nearly all our recent (last 6 months) EP hires were young professionals from Europe. 

Instead, I have one team member from India stating that he will be leaving us because as a single income family, the cost of living here with 2 soon-to-be school going kids is not sustainable for him.

The one EP with family that is starting with us next month has dual income (husband relocated to SG, she was finding a job here) and her husband's company is paying the school fees. These types are getting lesser and lesser (most of my clients are MNCs), based on my interactions.

There has been abundant discussion with regards to the investment merit of this counter, particularly with regards to its operating leverage structure, falling dividend payouts in light of decreasing student numbers, the location of its campus subsequent to its move from Paterson Road, and its "second in class" stigma amongst international schools. 

Perhaps an under-rated business feature of owning a school is its revenue quality - it is a high margin business, and with tuition fees typically due for payment a month prior to the commencement date of each school semester, OEL enjoys very clear revenue visibility in a business year for the purposes of capital allocation, debt repayment etc. Such features also are reflective of OEL's historically low bad debt numbers. 

Prospective investors would have to form a view with regards to whether the company is able to stem and bolster its dwindling student numbers over the recent financial years - as previous comments have highlighted, this is not an answer easily addressable. 

Yet, at current prices, there may be an investment case premised on the (1) increasing influx of international students and expatriates as borders continue to open (2) continued repayment of outstanding term loan (3) reversion of past dividend payouts (a 0.0275 dividend at current prices would be a 11.5% yield). There is seems to be evidence of an uptick of student enrolment - the key questions remains as to whether how much of this pie can OEL obtain, bearing in mind the school has the structural capacity to absorb a significantly larger amount of students (current enrolment at 2250, vs designated capacity of 5000).

Evidence of a demand surge can be observed in international schools in overseas countries, highlighting the degree of value creation a well-ran and managed international school can have on its shareholders.

https://www.straitstimes.com/business/in...illionaire

OEL's school expansion was meant to cater for a growing expat population in SG which subsequently became a policy reversion by the government. They are not the only school with "spare" student capacity. One can ask how many expat families have to move to Singapore before those capacity are filled meaningful. And how does that compared with current EP salaries as a cost consideration for employers. In addition, you need to consider their student attrition rate where some are merely enrolled to wait for a spot in other more prestigious IBs.

On the flip side, Thailand has other structural characteristics which may not reflect the same as SG. That I am not sure but Thailand stock market does assign a very excessive premium to trendy stock.