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WHAT’S NEW
• We met up with OEL’s management recently. This report highlights the key takeaways.
ESSENTIALS
• Moving into the new campus. 2015 is going to be an important milestone for OEL as the company will bid goodbye to its Paterson Campus of 25 years and move to a new campus in Pasir Ris. To recap, the new Pasir Ris campus will have a 25% increase in student capacity and is set to be completed by 30 Apr 15. The new school term will only start in Aug 15.
• Positive financial impact will flow through in 2016. We expect the increase in enrolment to take time as new term will only start in Aug 15.
Note that the capacity is 4,800 at the moment but we think that if the group is able to demonstrate to the authorities that it can implement proper traffic control to minimise congestion in the area, they could apply for an increase in student numbers. In the meanwhile, the company has to record a depreciation charge (S$8m p.a.) on the new campus vis-à-vis rental (S$7m p.a.) and a bond interest of S$7.8m p.a.
We estimate that earnings growth will ensue in 2016 as the projected increase in enrolment and fees will more than offset the higher operating costs.
• Management confident of business outlook. Despite the government’s policies targeted at controlling the number of foreigners working in Singapore, we believe the regulation is targeted more towards blue-collar worker than OEL’s clientele. OEL still receives enquiries every now and then and sees room to increase fees as they move into the new campus.
Their fees are still 10% below their peers at the moment. We are confident of its cash flow generation capabilities and see no risk in repaying the S$150m bond due 2019. This is despite the 50% planned dividend payout ratio of the company going forward.
Full report here.
