Overseas Education Limited

[d.o.g.]

No 40c no look,I don't buy the notion ang mo are willing to pay for anything that come with a high price,more and more ang mo are not on expat pay,I also think the company make a mistake
.they should have kept the Patterson campus and buy a smaller site at pasir ris,by doing these students will have choice with two location which wouldn't lead to a big drop in student numbers,bad business planning, couple with rising costs,it is a recipe for destruction in earning

The company did not have the choice to keep the Paterson campus. The lease was expiring and the government decided they "needed" to have a condo there. As for the Pasir Ris site, it was "take it or leave it". When the government offers sites for schools it does not change the size of the sites according to the schools' desires. The sites are pre-designated, if you think you will have fewer students you bid lower. You don't have an option to shrink the site, you can only build a smaller school on the same plot of land, or you can bid on a smaller site in a different location.

Enrollment has dropped because a lot of expatriates have been sent home or simply laid off. That is not something the school can control. What they can control is the quality of the education they provide i.e. "value for money". Gross disparities aside, school fees do not inform parents' choice of school. "Daddy lost his job" is an acceptable reason to change schools. "Daddy needs the money to buy more toys" is not.

The school has an official capacity of 4,800. It currently enrolls considerably less than that, so obviously the fixed costs (wages, utilities, interest) hurt. The flip side is that when enrollment improves (which is something the government also wants very much) profits will improve disproportionately.

[chinafarmer]

This quarter results should prompt investors to rethink the resilience of the school business. I believe some believed in the resilience of its earnings due to it being in the education sector. However, the results have poked holes in this safety net. The company guided in its outlook statement "The foreign system schools (FSS) in Singapore are to a large extent dependent upon the growth of the world economy and the ability of Singapore to attract foreign investments. The Group would not be able to predict any trends on the development of the world economy.With the completion of the new school facility at Pasir Ris and school operations having commenced on 1 July 2015 at the new premises, the Group is well placed in the FSS market to support any expansion of foreign investments into Singapore."

Not as resilient as once thought.

[greengiraffe]

No 40c no look,I don't buy the notion ang mo are willing to pay for anything that come with a high price,more and more ang mo are not on expat pay,I also think the company make a mistake
.they should have kept the Patterson campus and buy a smaller site at pasir ris,by doing these students will have choice with two location which wouldn't lead to a big drop in student numbers,bad business planning, couple with rising costs,it is a recipe for destruction in earning

The company did not have the choice to keep the Paterson campus. The lease was expiring and the government decided they "needed" to have a condo there. As for the Pasir Ris site, it was "take it or leave it". When the government offers sites for schools it does not change the size of the sites according to the schools' desires. The sites are pre-designated, if you think you will have fewer students you bid lower. You don't have an option to shrink the site, you can only build a smaller school on the same plot of land, or you can bid on a smaller site in a different location.

Enrollment has dropped because a lot of expatriates have been sent home or simply laid off. That is not something the school can control. What they can control is the quality of the education they provide i.e. "value for money". Gross disparities aside, school fees do not inform parents' choice of school. "Daddy lost his job" is an acceptable reason to change schools. "Daddy needs the money to buy more toys" is not.

The school has an official capacity of 4,800. It currently enrolls considerably less than that, so obviously the fixed costs (wages, utilities, interest) hurt. The flip side is that when enrollment improves (which is something the government also wants very much) profits will improve disproportionately.

So its still the economy really... high costs base, better prospects globally... now apart from O&G, medical and possibly even financial svs will be affected... Singapore economic outlook of serious concerns... can 70% mandate help?

Not Vested
GG

[CCUV]

No 40c no look,I don't buy the notion ang mo are willing to pay for anything that come with a high price,more and more ang mo are not on expat pay,I also think the company make a mistake
.they should have kept the Patterson campus and buy a smaller site at pasir ris,by doing these students will have choice with two location which wouldn't lead to a big drop in student numbers,bad business planning, couple with rising costs,it is a recipe for destruction in earning

The company did not have the choice to keep the Paterson campus. The lease was expiring and the government decided they "needed" to have a condo there. As for the Pasir Ris site, it was "take it or leave it". When the government offers sites for schools it does not change the size of the sites according to the schools' desires. The sites are pre-designated, if you think you will have fewer students you bid lower. You don't have an option to shrink the site, you can only build a smaller school on the same plot of land, or you can bid on a smaller site in a different location.

Enrollment has dropped because a lot of expatriates have been sent home or simply laid off. That is not something the school can control. What they can control is the quality of the education they provide i.e. "value for money". Gross disparities aside, school fees do not inform parents' choice of school. "Daddy lost his job" is an acceptable reason to change schools. "Daddy needs the money to buy more toys" is not.

The school has an official capacity of 4,800. It currently enrolls considerably less than that, so obviously the fixed costs (wages, utilities, interest) hurt. The flip side is that when enrollment improves (which is something the government also wants very much) profits will improve disproportionately.

What you say is true,they have no choice and they also not the top choice among expat I guess,they might also overestimate the stickiness of their brand,if the above case happened to ACS will it be the same situation? I hope people are not emotional, I don't think there is a quick turn around, more competition,recessionary type economy and increasing overhead with a 150m bond outstanding,doesn't look good huh?

[justtrying11]

As someone mentioned above. It is important to look past the hype and consider the school's durable advantage (if any).

There are a few facts for us to consider:

1. Supply
Based on this article, Singapore has more than 30 international schools and wait lists for schools have become more manageable as more international schools have opened here. In addition, other schools also seem to have expansion plans.

http://www.straitstimes.com/singapore/ed...ool-places

2. Foreigner population and Spending power
143,400 foreigners were here on employment passes in 2010, and this increased to 180,800 in June this year. This represents a CAGR of approximately 4.8%.

While this statistic sounds exciting, it has become more common for expatriate employees to take on local pay with additional compensation or benefits, than premium expatriate packages.  We don't know how much more pay that translates to, but it does mean that less foreigners are on packages where their children's education is fully paid for.

To me, this means that foreigners may become more cost conscious and coupled with the expected increase in supply; fee pressure. I'll leave you to imagine what that means for the top line.

3. Reputation
The abovementioned article mentions an expected increase in demand for the early childhood market and as it goes in the education industry, reputation is everything and building it takes lots of time.

OEL's Management recognized this and axed 33% of their staff last year with plans to hire better qualified teaching staff.

http://www.straitstimes.com/singapore/ed...hing-staff

4. Summary
OEL has a stable business and as long as it doesn't screw up in a terrible way, cash flows will be stable. At the current price, it's still too expensive and based on OEL's current fundamentals, I would need a price of at least $0.55 before I invest.

[Dividend Hermit]

Sorry, I think your question was focused on the bond rather than the shares....I like the bond, precisely because it is a boring, predictable business where parents have to pay fees in advance of each semester. I am long the bond and think there is value as long as you get it above 4 - 4.5% and you are willng to hold to maturity. It won't make you rich but I think it is a strong credit but probably not one that many investors know and hence they had to price it generously at 5.2%. Last I saw, the price was around 101.

(vested in the bond)

Hi, thanks for your valuable inputs! I am thinking the bond looks more attractive than the shares. If they gonna pay annual coupon, their EPS and dividend (their policy is 50% POR) will decrease further until the new campus is completed. In that case, I should only be vested in the shares if I expect the price to increase substantially.

This is a good company and I am definitely interested. But I am mulling over the entry price and possible risks (competition from other schools, staff costs). Right now, as you said, the price is on the high side. Shall observe further as there are also other good companies but I only have limited funds to deploy.

I have been monitoring OFS since Apr 2014 and I am still not convinced yet. Nowadays, a lot more cost-conscious foreigners are opting for local schools instead, and rich foreigners would go for more prestigious brand names like UWC and SAS. OFS is facing pressure from both ends of the spectrum. I would treat OFS as a zero growth dividend stock and at least 6% yield is required to entice me.

[GreedandFear]

As someone mentioned above. It is important to look past the hype and consider the school's durable advantage (if any).

There are a few facts for us to consider:

1. Supply
Based on this article, Singapore has more than 30 international schools and wait lists for schools have become more manageable as more international schools have opened here. In addition, other schools also seem to have expansion plans.

http://www.straitstimes.com/singapore/ed...ool-places

2. Foreigner population and Spending power
143,400 foreigners were here on employment passes in 2010, and this increased to 180,800 in June this year. This represents a CAGR of approximately 4.8%.

While this statistic sounds exciting, it has become more common for expatriate employees to take on local pay with additional compensation or benefits, than premium expatriate packages.  We don't know how much more pay that translates to, but it does mean that less foreigners are on packages where their children's education is fully paid for.

To me, this means that foreigners may become more cost conscious and coupled with the expected increase in supply; fee pressure. I'll leave you to imagine what that means for the top line.

3. Reputation
The abovementioned article mentions an expected increase in demand for the early childhood market and as it goes in the education industry, reputation is everything and building it takes lots of time.

OEL's Management recognized this and axed 33% of their staff last year with plans to hire better qualified teaching staff.

http://www.straitstimes.com/singapore/ed...hing-staff

4. Summary
OEL has a stable business and as long as it doesn't screw up in a terrible way, cash flows will be stable. At the current price, it's still too expensive and based on OEL's current fundamentals, I would need a price of at least $0.55 before I invest.

Very disappointing performance. I guess I had underestimated the downside of the Pasir Ris location / how attractive an Orchard Road campus was to parents. I largely agree with the above comments. What does concern me is that OEL's registration #s are falling and I don't the impression that this is the case at other well-branded schools (SAS, UWC, Stamford, Dulwich). In fact Dulwich seems to continue to grow. The only new school that continues to really struggle is GEMS. Whilst I agree that expats are becoming a lot more cost conscious and that tuition fees have risen way too fast in the past few years, I do think that the main problem is not so much a reduction in expats who can afford to pay as just too rapid an increase in school capacity. In the last 4 years, we have seen UWC open a second campus (probably 2000 students) , Stamford moving from a small campus (500) to a new campus (2000), Dulwich opening (currently at 1500, plan to go to 2000+), GEMS opening (aiming for 2000 but apparently have below 500 and are struggling) and OEL moving to a larger campus. The questions, to me , are (1) whether additional new schools will be built (the govt has offered several plots of land for lease) in the immediate future, (2) whether more expats will arrive and (3) whether these larger branded schools will gradually cannibalise the demand from smaller schools who cannot afford the same facilities. It seems to me that OEL needs to start a major marketing campaign to improve the brand and probably needs to either lower fees or freeze them in order to attract more students and position themselves as an attractive, affordable tier below the big boys with stringer brans. As noted above, they have more than sufficient capacity but need more students to cover fixed costs....

[snapsnap]

whats wrong with our PEI's education system. thought CPE set in to regulate the industry already
anyway alot of foreigner students takes singapore as a statboard, jump jump, with US and UK exchange rate dropping low, compared to years ago. many of them would be more that glad to head overseas directly.

http://www.theedgemarkets.com/sg/article...e-65-cents

[chinafarmer]

if not for the recent c.10percent increase in school fees, OEL could have easily made a loss this q.

[cyclone]

08-Sep-2016. New substantial shareholder emerged : Saray Developed Markets Value Fund, holding 20,954,000 shares.