It once was so good. It is now so bad....
Raffles Education share price was about S$5 in 2006. It is now struggling to stay above 35 cents.
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Hock Lock Siew
Published November 21, 2006 in Business Times
Education pays - for this stock
By TEH HOOI LING
WHAT does it take to become a millionaire? Ten thousand dollars, four years and ten months, one stock - and not least of all, belief and patience.
And that stock is Raffles Education.
An investor who had invested $10,000 in the then Raffles LaSalle back in 2002 during its initial public offering, and had kept reinvesting the dividends back into the stock, would have seen his or her capital grown to $1,102,644 today. Pure capital appreciation would grow the portfolio to $943,955.
The market started recognising the potential of Raffles Education in 2003, about a year after its listing. Despite the extremely poor market sentiment then, the company still managed to command a price-earnings ratio of about 21 times. And in the following few years, as Raffles Education proves that it has a winning strategy on its hands and keeps exceeding the market's expectations, its PE multiple, too, is continually upgraded.
As of yesterday, the group's market capitalisation of $1.67 billion is about 50 times its net earnings of $32.3 million for the year ended June 30, 2006. Coincidentally, both Credit Suisse and UBS have forecast net earnings of $46 million - a 42 per cent growth - for Raffles Education for FY07. That would give it a PE of 36 times.
The question now is, what is the probability of Raffles Education being able to stay on this high growth trajectory?
Those who have been to any one of Raffles' eight colleges in China would come away feeling that the group has more than a viable business. Last month, I visited its Changchun outfit in Jinan province - among its smaller colleges in China. Student intake has more than tripled in the last one year. And if the dedication and drive shown by those running the Changchun college are anything to go by, Raffles has many good things going for it.
True, competition is tough. I was told how competitors would enrol 'fake' students into the Changchun college to try to influence other students to drop out. Then there was an administrative staff who was found to be receiving commissions for every successful Raffles student referred to a competing school.
But in the last three to four years, Raffles has built up a solid reputation for itself. Word of how so-and-so's son or daughter has landed a well-paying job after graduating from a Raffles college is as good an advertisement a school can get.
Innovative staff
Ensuring that quality of education is the teaching and administrative staff that Raffles is able to attract and retain. Some are from overseas, who bring with them new ideas and the passion to teach. They themselves are attracted to the idea of living in China - at the frontier of change. Raffles provides them the opportunity to do that. In turn, they bring enthusiasm and innovative ideas to their jobs. The outcome is win-win-win for all.
Of course, the bulk of the credit has to go to Chew Hua Seng, founder, chairman and CEO of Raffles Education. He started with a design school in Singapore. Then he branched out to China, with design courses as well. Next he broadened the schools' offerings to include management, hospitality and psychology. And besides China, he also brought Raffles to India, Vietnam, Thailand, Australia and New Zealand. Today, Raffles runs 26 colleges in Asia and is the largest private education service provider in this part of the world.
The plan now is to establish the self-accrediting Raffles University. Once that takes place, the per student earnings for Raffles will get a significant boost. Currently, a sizeable sum goes to the affiliated universities that Raffles works with for its degree courses.
Credit Suisse estimates that student enrolment should rise from an estimated 7,200 in FY06 to 15,700 by FY09. Meanwhile, it reckons revenue contribution per student would increase to $13,200 from $12,600, while costs would decline to $6,700 from $7,800 due to economies of scale. This would translate into a 37 per cent compounded annual earnings growth through to FY09.
In an increasingly knowledge-based economy, education is the best investment one can make. And parents know that. As long as Raffles Education can maintain the quality of its courses and get its fair share of students, it is nowhere near the end of its runway.
In this instance, perhaps a high PE multiple shouldn't be a deterrent to one getting in or holding on to a business that makes good money imparting knowledge to future generations.
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