Raffles Education

[stilicon]

You are certainly right, Kennynah.
But to think of those analysts as purely cynic minds is also certainly a fantasy. People generally are far less cynic than one likes to believe. They often tend to genuinely believe in fantasy PR stories emitted by the companies. Sometimes, they also transform themselves into a PR agency - without realising it sometimes.
Most of them have no or very little managerial experience. They have not managed or developed a company. They have not build anything, nor recruited people, nor had to fire people (one of the most impressive and negative experience one can have in the business world, imo). They are naive and like to build intellectually pleasant scenarii. Therefore, they are most dangerous to listen to. I concur.

[winston]

i have given up on reading analysts reports for a long time now... at best, these reports are like Crammer's recommendations...to be faded...

I actually find Analyst's reports quite useful. They provide me with a lot of ideas.

However, I do not use their Target Price outright. Instead, I will look at the assumptions used to calculate the Target Price and see whether it's reasonable or not ...

[stilicon]

I must confess I also like to read every analyst note I can reach. With all the caveat already expressed. However, as for TP, I like to do it myself, mostly - for dividend oriented companies - using a two-step DDM or "Gordon/Growth model". It is always instructive to see the implicit LT growth rate in a TP or current price either. Most of the time, I have the feeling that TPs suggest too high a LT growth rate. That or we will have serious inflation down the road. But that's another debate.

[winston]

Not vested. Wow ! I'm so excited

Raffles Edu to set up 4 new colleges in India By ANGELA TAN

Raffles Education Corporation Limited reported on Tuesday that it is pumping S$4 million in initial investment to set up 4 colleges in India.

The colleges, which will be set up under the Raffles Millennium International (RMI) flagship, will cost an initial investment of SGD1 million each.

They will receive their first intake of students from April 2010 onwards.

The colleges will offer courses in Fashion Design, Fashion Management & Marketing, Jewellery Design, Product Design, Interior Design, Visual Communication, Business, and Tourism and Hospitality Management.

These new colleges are not expected to contribute materially to the group's performance for the financial year ending 30 June 2010.

Source: Business Times

[winston]

Not vested. Down 7% already ...

RAFFLESEDUCATIONCORP POSTS NET PROFIT OF S$7.5 MILLION ON REVENUE OF S$47.2 MILLION FOR Q2FY2010
- Higher operating expenses as REC invests for organic growth
- Five new colleges in FY2009 and another five in FY2010
- Healthy cash position of S$89.7 million
- Low net gearing ratio of 0.18 times

Singapore, February 3, 2010 – Raffles Education Corporation Limited (“RafflesEducationCorp” or “the Group”), the largest private education provider in the Asia-Pacific region, today reported a net profit of S$7.5 million on the back of a 13% decline in turnover from the comparative quarter.

Revenue was S$47.2 million for the second quarter ended December 31, 2009 (“Q2FY2010”) compared with S$54.2 million in the second quarter ended December 31, 2009 (“Q2FY2009”).

The decline in turnover was primarily due to a reduction of National Education School (“NES”) students as a result of a decrease in the number of students in China taking the Gao Kao or “高考” (an academic examination held annually for students seeking admission into institutions of higher learning in China) as well as the cumulative effect of reduction in students recruited over the last four quarters due to the impact of the global financial crisis.

For Q2FY2010, there was a marginal increase in student enrolment in the Group’s Private Education School (“PES”) colleges compared to Q2FY2009. The impact of this increase in student enrolment will only flow through the results in the subsequent quarters.

Net profit declined 73% from S$27.3 million in Q2FY2009 to S$7.5 million in Q2FY2010, mainly due to lower revenue in Q2FY2010 and the impact from the following:-
- Absence of a gain from disposal of land in Oriental University City (“OUC”) in Q2FY2010 compared to a S$6.3 million gain in Q2FY2009;
- An unrealised foreign exchange loss of S$1.2 million recorded in Q2FY2010 as compared to an unrealised foreign exchange gain of S$1.4 million in Q2FY2009;
- S$1.8 million increase in personnel and other operating expenses as a result of the set up of new colleges;
- S$0.4 million increase in finance costs due to higher amortisation of finance charge on long term payables related to the deferred purchase consideration of OUC, over the period of payment for the purchase consideration;
- S$0.8 million decrease in share of results from associates as the Group stopped equity accounting for the results of Oriental Century Ltd (“OCL”) since Q3FY2009.

Mr Chew Hua Seng, Chairman and CEO of RafflesEducationCorp, said: “This is a year of transition and continued investment in organic growth for REC. We are encouraged by the stronger enrolments in Q2FY2010 at our private education schools as it provides early indication that the worst is behind us. However, a return
to pre-crisis operating levels for our China operations will take a few more quarters.

We have set up a new college in Cambodia (Phnom Penh) and another four in India (Ahmedabad, Chandigarh, Chennai and Hyderabad) in FY2010. We are in the process of setting up a college each in Sri Lanka (Colombo), Bangladesh (Dhaka) and India (Kolkata) to expand our stable to 36 colleges located in 34 cities across 13 countries.

As new colleges go through their gestation periods, the five colleges invested in FY2009 are expected to impact positively from FY2011 onwards. The additional five new colleges set up in FY2010 and the three prospective ones to be set up by end of FY2010, are also expected to contribute positively from FY2012 onwards.”

The Group’s balance sheet is strong, with a low net gearing level of 0.18 times as at December 31, 2009. Cash and cash equivalents stood at S$89.7 million as at December 31, 2009.

[Aspellian]

Wonder at which point in time will the faithful Raffles shareholders throw in the towel?? when raffles is in the red?

The only for Raffles to continue to meet growth targets is to boot-strap more and more acquisitions... and become more and more messy, more and more debts and more risks of another Oriental.

I wrote the above in early Nov when Raffles Edu trading at $0.475.
Now its trading at $0.385 (after another 6% drop today).

if i am smarter and invest where i believe in (which i seldom have the conviction - and which i am to train up my courage and be more decisive), will be a much happy man.

Probably a consolation prize is that i should spend more efforts analysing counters to long or short and act on my convictions!

as for this counter, will watch how the story develops. (considering to short this when there's a rebound!)

[Aspellian]

if one has been tracking other education centres - some are actually booming - because when one is jobless, one may consider upgrading.

if exposure is in China, the market should be booming. as such why is Raffles Edu struggling? prob it expanded too fast trying to keep up with its PE ratio. such that there's no proper building up of each college before they set up another 10. education is about lasting reputation.... if the students have a bad experience, there will be less referrals and less revenue in future.

Edu supposed to be recession proof, isnt it???

[Musicwhiz]

Edu supposed to be recession proof, isnt it???

Yes, that's the prevailing notion. But then again, there's competition as well, because of low barriers to entry. So a business like REC has to depend on reputation and also its course structure and accreditation to attract students. It's not always easy to do so.

Just to give examples - NUS MBA frequently and aggressively advertises and pits itself against NTU MBA, as well as many other regional schools. So even though MBA may be a desired educational qualification, many schools struggle to get themselves "heard" above the din.

So probably for a company like REC, it may have issues attracting enough students to break even; and also struggling with high initial setup costs as well.

[winston]

Not vested. From DBS:-

Raffles Education’s 2Q10 net profit of S$7m (-74% yoy) was below our analyst’s expectations, despite being lowest in streets’ estimates. Lower enrollments, higher opex and absence of gains were the main reasons for huge drop.

The Group has set up 5 more new colleges in FY10. It is planning to set up another 3 in FY11. However, new colleges will take time to ramp up.

We have trimmed earnings further by 33% and downgrade the stock to Fully Valued, TP: S$0.32 (Prev S$0.42).

[kennynah]

my sense is that most employers much prefer mainstream educational qualifications from established institutions such as NUS & NTU... for REC and such private schools to stay successful, they must conduct curriculum that augment or compliment desired knowledge that mainstream tertiary institutions do not focus on... this in itself is a challenge besides requiring a lengthy time to build credibility....