Overseas Education Limited

[FFNow]

Overseas Education Limited, which owns Overseas Family School, is going to IPO. OFS has a 10% market share in the foreign school system (FSS) in Singapore. The prospectus of OEL can be found at:

https://www.google.com.sg/url?sa=t&rct=j...7550,d.bmk

[yaosheng]

it is an interesting company. if you look at B/S, almost 80% cash. some of which are from fees paid in advance, but still company is quite cash-rich.

have been asking some of my friends who went to international schools. feedback is that UWC is way better in terms of education/learning though.

[FFNow]

Yes, I asked two of my friends. Both said UWC.

---

Some reviews I found on the internet. The reputation for OFS not that good. UWC and SAS are the top names.

http://www.guidemesingapore.com/blog-pos...-singapore

http://www.internationalschoolsreview.co...41dab71743

http://sg.theasianparent.com/ofs_singapore_review/

[level13]

They will only be in their orchard location for another 2+ yrs. Assuming they are already running at full capacity, i do not expect significant jump in their revenue and profit in the next 2 yrs.

Assuming the profit remains the same and taking the payout ratio as 50% which management has committed, a quick back of the envelope calculation will give a us a yield of 5% using the ipo px of $0.48.

Well since the education sector is known to be a more defensive play with strong cash flow and b/s, its understandable that the owner will want to px this ipo higher and thus lowering the yield investors will get. No free lunch.

[mobo]

Hi guys, since I talk to quite a fair number of expatriate tenants, I should share some knowledge on expatriate schooling in Singapore especially with regards to UWC and OFS.

I can see some comments saying UWC is much better than OFS in quality and reputation. That is pretty much what I gathered anyway, but UWC is not a good peer comparator for OFS.

UWC is way more expensive and atas than OFS. They mainly cater for the senior executive expatriates of MNCs where school fees are not a problem and fully provided for by their employers.

My understanding is that this school is so hot that many of such senior executives are able to exert influence in their companies to "pressure" company to chalk up 6-figure sums as debentures in order to be given admission priority.

OFS attendees on the other hand are mostly children of mid-senior managers expatriates or executive level employees who are here on local+ packages instead of full assignment. As benefit coverage for this group of employees is not as generous, they tend to settle for OFS either to keep within company budget or minimize their own cash outlays.

The target market segment for these two schools are in fact quite different although both target mainly the foreign community.

[GreedandFear]

Hi guys, since I talk to quite a fair number of expatriate tenants, I should share some knowledge on expatriate schooling in Singapore especially with regards to UWC and OFS.

I can see some comments saying UWC is much better than OFS in quality and reputation. That is pretty much what I gathered anyway, but UWC is not a good peer comparator for OFS.

UWC is way more expensive and atas than OFS. They mainly cater for the senior executive expatriates of MNCs where school fees are not a problem and fully provided for by their employers.

My understanding is that this school is so hot that many of such senior executives are able to exert influence in their companies to "pressure" company to chalk up 6-figure sums as debentures in order to be given admission priority.

OFS attendees on the other hand are mostly children of mid-senior managers expatriates or executive level employees who are here on local+ packages instead of full assignment. As benefit coverage for this group of employees is not as generous, they tend to settle for OFS either to keep within company budget or minimize their own cash outlays.

The target market segment for these two schools are in fact quite different although both target mainly the foreign community.

---

A few thoughts :

1. 2013 revenues should increase as tuition fees were raised by 10-15% effective Aug 2012 (ie FY2012 only benefited for half a year). They are operating at close to their max capacity of 3,800 students so my guess is that revenue increase will be limited to around 5-6%.
2. Despite the tuition increase, OFS fees are still around 7% lower than the average of the other big schools (UWC, Tanglin, Singapore American, Stamford American, Canadian and Australian), so another hike could occur this year (in which case effective August when the school year starts so impact will only be for 5 months).
3. Next catalyst would be moving to their new campus in two years time. Student capacity will increase to 4,200 (so 9% growth) and with new facilities, they should be able to increase fees to the level of a Stamford or Singapore American (another 10%).
4. OFS currently pays just under $7mm in rent. Assuming a cost of $200mm for the new campus funded $100mm by IPO proceeds and own cash flow and the other $100mm in debt at 3-4%, annual savings should be $3-4mm.
5. This is a very simple and stable business (barring SARS or another global crisis). Should generate lots of free cash flow and high dividends PROVIDED that labour costs don't spiral out of control (2012 saw a 15-20% jump).
6. Competition is increasing (UWC opened a new campus a year ago, Stamford American this year and Dulwich will open next year) but the top schools still have waiting lists. barriers to entry are increasing due to the large investments required (Stamford spent $200mm on their Upper Serangoon campus and Dulwich is looking at $2-300mm for their upcoming Jurong campus).
7. Assuming the above fee hikes take place, the campus construction is smooth, then we could be looking at a 50% increase in net income and a 6% dividend yield (assuming 50% pay-out) for FY 2015. This should be very attractive for stable business but that is three years away....which is a long time to wait. One to watch but for a better entry point.

[yan]

Hi,
I made two observations and would like to hear your views.

1) For 2012, Trade receivables increase by more than 0.5mil, but no allowance was made for bad debt. I find this weird because trade receivables was much lower the previous year, with allowance was made. I worry about the ability of the company to collect receivables, or likely misrepresentation of revenues?
2012 2011
Trade receivables 1,168,898 vs 655,974
Less: Allowance for doubtful debt – vs (8,000)

2) Directors compensation increased by almost 10x! (419,624 in 2012 vs 34,000 in 2011).
Any ideas on why the big increase?

Looking forward to hearing your views. Thank you.

[GreedandFear]

Hi,
I made two observations and would like to hear your views.

1) For 2012, Trade receivables increase by more than 0.5mil, but no allowance was made for bad debt. I find this weird because trade receivables was much lower the previous year, with allowance was made. I worry about the ability of the company to collect receivables, or likely misrepresentation of revenues?
2012 2011
Trade receivables 1,168,898 vs 655,974
Less: Allowance for doubtful debt – vs (8,000)

2) Directors compensation increased by almost 10x! (419,624 in 2012 vs 34,000 in 2011).
Any ideas on why the big increase?

Looking forward to hearing your views. Thank you.

I wouldn't be too concerned about trade receivables. $1.168mm compared to total revenues of $96mm is a very small amount. Per the annual report, fees are due one month before the start of each semester so if you want your child to attend school, then you need to pay....hence, I find it unlikely that they will have many bad receivables. Particularly as you also need to pay an upfront registration fee (which you don't get back) just to secure a place.

Agree that the directors fees seem excessive given that there are only five directors. $84,000 per director seems more in line with what a much larger market cap company would pay. My guess is that fees jumped as they went public. Previously, all profits went to the two major shareholders so they probably didn't care about directors' fees.

I continue to like the business. Very solid and simple but shares are not cheap and there is no significant earnings catalyst until the new campus is built (and I read that there is local resident opposition as, apparently, this is a wetlands nature site, so who knows whether the new campus gets delayed....).

[isobront]

There has been high volume activity this week. shares hit high of 83 cents (15% increase). and a big drop yesterday (weds). any clue?

[Dividend Hermit]

Overseas Education proposes to issue $150M worth of bond with coupon rate of 5.2% (due 2019) to fund the new campus.

http://infopub.sgx.com/FileOpen/OEL_Anno...eID=291031

What do fellow buddies think of this?