Raffles Education

[winston]

Not vested. From Lim & Tan:-

Victim Of Negative Media Report. S$0.51-RLS.SI

Raffles Education (RE) said that a website in China known as China’s 21 st Century Herald had on 25 Aug’09 published a speculative report indicating that a number of teachers in its 100%-owned China unit Oriental University City (OUC) have false accreditations.

RE said that while it is not the company’s policy to comment on speculative reports, management have decided to advise its shareholders and the investing public that the media report contains a number of inaccuracies and misleading facts and figures. Their 2 colleges at OUC are bona fide schools with all the requisite approvals and permits in place.

Management also cautioned against the wilful circulation of the media report and reproduction of the untruths
and misleading facts and figures. And that it would not hesitate to seek legal redress against anyone found doing
this.

The date of the negative media report was coincidentally released on the same day that RE released its full year
ended June’09 resultswhere its performance came in below market expectations due to higher than expected costs, slower than expected student growth rate and start up costs of new colleges. This had resulted in a few
downgrades and target price reductions by analysts.

At the same time, technically the stock breached its short term uptrend in place since Mar’09

Since 3Q ended Mar’09, the company had stopped its usual quarterly dividend payment.

At 50.5 cents this morning, market cap is S$1.324bln, trailing PE is 26x, price to sales is 6.5x and price to
book is 2.5x.

We do not have a rating on the company.

[financecaptain]

Does not sound right.
Especially on stopping of quarterly dividends and spates of recent bad news on its operations and financial performance.
Not vested. Education is supposed to be a good business. But easy to subject to accounting manipulations.
Will certainly watch out for this counter.

[Aspellian]

无风不起浪.
No smoke without fire.

PE of 26, worse is over(?), be careful when the elephant funds finally awaken and start to exit this counter... it will be ugly. short target? yum... yum...

<not vested in either directions>

[Aspellian]

Raffles Education gets ‘outperform’ with price target of 95 cents from Cazenove
Cazenove Asia has initiated coverage on Raffles Education with a 12-month target of 95 cents. It is also calling an “outperform” on the operator of private and public colleges offering design, business and psychology courses in China and India.

“Despite our conservative assumptions versus the consensus, margins remain twice those of the global sector. Our S$0.63 fair value is based on 20x CY2010 PER, similar to the sector. Its 5 year PER range is 10x 50x,” says analyst Leong Waimun in a Sep 3 research report.

After quadrupling its earnings since 2005, Leong admits Raffles Education now faces more modest organic expansion. However, Leong still expects EBIT growth to hit 12% for FY2010–2011 as “there is upside potential for earnings if credit conditions allow for acquisitions or if student enrolment numbers accelerate”.

In addition, Leong says none of Raffles Education’s listed peers offer exposure to China’s tertiary education market. “After a decade of rapid growth, China overtook the US with the largest tertiary enrolment of more than 18 million students in 2007. Education remains a priority for China, as stated in the 11th five-year plan.”

<There must be a reason why NONE of the listed peers wishes to be exposed to tertiary market. But IF R-Edu finds the winning formula in this super-niche market, then it will fly.>

Since Raffles Education established its first China college in Shanghai in 1994, it has expanded through acquisitions and organic growth to more than a dozen colleges, managing over 20,000 students. Despite initial glitches, Oriental University City (its largest acquisition) could still be transformational as it aims to progress from landlord to university operator by swapping fixed assets for equity stakes in third party colleges renting space at OUC, thereby growing market share without the startup drag.

Raffles Education has also made headway in India where it operates four small colleges and is planning for five more. It aims to protect margins there with the progressive introduction of proprietary curriculums.

However, risks include slower growth in student enrolment, value enhancement at OUC, startup drag from new colleges and high consensus expectations, adds Leong.

[winston]

Do you understand the acquisitions at OUC ?

I also have a note that on my watchlist that Fidelity was selling down their stake. Please see the SGX websites for the latest transactions..

[Aspellian]

Fidelity have the sold the following shares:
7/9/09 - 7.4mm shares; outstanding 123mm (4.72%)
25/8/09 - 14.8mm; outstanding 145mm (5.62%)
11-13/5 - 38mm; outstanding 160mm (6.61%)

Fidelity last bought 4.6mm shares in Jan 09.
___________________
Thanks for Winston for pointing out, i didnt know that the Fidelity fund managers are selling down so strongly. We will never know whether Fidelity will continue to hold on to its remainder 4.72% shares until next annual report date!! But i wont be surprised if you dun find its name there at all in future.

I am sure Janus Capital Management which bought 16.8mm shares in July for $0.635 are now sweating in their pants and wondering whether they should pare down their stakes as well. Janus has a cool 5.18% for us to monitor whether they have the BALLS to admit their initial analysis is wrong!! Its always interesting to be an observer and learn from the investment professionals. <from my opinion - risk-reward for Raffles Edu is gone>

Surprisngly the share price can still hold up so well despite the negative news and sell-down by fund managers. Jesse Livermore the Junior must be helping Fidelity to distribute the shares!!

Good luck to all who still insist and believe that the fundamentals of this company is good. You MAY still be right - but the odds are strongly AGANIST you. Take care. never let your pride,greed and ego kill your golden goose (investment capital). Good luck to all!

<of cos not vested!!>

[winston]

No need to worry that much lah ...

Peter Lynch says that you need not worry if there are selling by Insiders. They sell for various reasons. However, they only buy for one reason.

Hmmm.... what a coincidence. Peter Lynch is with Fidelity

[Aspellian]

From my limited knowledge of Raffles Edu (i have not even read their annual report), i understand the following of Oriental Century (OC).

OC is a university landlord - renting out classroom facilities to different curriculum operators. so probably there is no single direction on the courses offered etc. There is limited synergy as compared to a typical university. Imagine school of medicine and school of law, business, engineering all run under different management using their own brand name.

Raffles Edu after acquiring OC is trying to buy over these individual operators by giving them stakes in Oriental Century. In this way, Raffles Edu can set the direction, curriculum, and probably increase margins. its forte is in managing enrolments, courses etc.

I presume that when RE looked at OC's valuation, it realised it is getting such a bargain buy. OC is also sitting on a "cash-pile". So when RE looked at its valuation model and make the assumptions that when all school operators convert ,coorpoerate and follow RE's direction, the margins and cashflows will be shiok! it can also use OC's existing cashpile to finance operations, it can issued OC's equity to the school operators instead of more cash required. The cashflow will then use to pare down the bank loan which RE borrowed to finance OC's transaction. Then RE can work on its next acquisition to push its growth.

That was IF EVERYTHING goes according to plan.

Now OC's cashpile is up in smoke.
OC's shares are worthless - so why will school operators want to convert their ownerships into worthless shares? you think chinese stupid, izzit??
RE is stuck with OC. it will take up much of management's time.

I will think the OC's cashflow alone (from rental) will not be sufficient to pay off both interest expense and bank loan by itself... so lan lan. who will want this piece of "trouble"? and what if the school operators rebel and make trouble with RE? probably a shrwed Chinese biz man will get the support of the school operators and buy out RE's stake in OC - but at fire-sale price.... interesting story plot.

i remembered that the path of M&A is not always a sure win success. One major screw-up and it will set you back many years - if you recover at all. the bigger the M&A, the bigger the risk.

RE is now like a bloated python - difficulty in digesting:

[kennynah]

u should make this into a short film and submit it for cannes film festival

[Aspellian]

No need to worry that much lah ...

Peter Lynch says that you need not worry if there are selling by Insiders. They sell for various reasons. However, they only buy for one reason.

Hmmm.... what a coincidence. Peter Lynch is with Fidelity

hahaha!! you are very good at leading others on with your logical thought process!!