Event
We hosted Raffles Education Corp (REC) on a one-day non-deal roadshow (NDR) in Kuala Lumpur last week. Accompanied by group Chairman and CEO Chew Hua Seng (his first investor roadshow in more than two-years), we met up with several major institutional/pension funds. Overall, the trip has reinforced our contrarian view that REC is firmly on the recovery path. Maintain BUY.
Our View
The key issues raised during the NDR were nothing new, mainly pertaining to dwindling student numbers, Khazanah’s interest in Oriental University City (OUC) and REC’s China real estate plans. We reckon most of these concerns have already been addressed in our earlier reports.
While the near-term outlook remains a challenge in China, management is optimistic that positive contribution from its new colleges set up in the past two years or so should help to provide a turnaround in its bottomline. However, the main headwind is the strong Singapore dollar (its reporting currency), given that 85% of the group’s revenue is currently derived from its regional operations.
Investors are generally able to comprehend REC’s desire to unlock its real estate assets, much to our surprise. As returns from education business tends to be slow and over the long haul, management has taken pains to explain the rationale behind its latest transaction to sell a 50% stakeholding in subsidiary Value Vantage Pte Ltd, as well as potential monetisation of OUC’s landbank. The cash proceeds will eventually be ploughed back into its core activities to build a more sustainable and robust business model.
Action & Recommendation
REC’s share price has recovered almost 28% since our last update on 5 July 2011. Despite the uninspiring results expected of FY Jun11, we believe the group will still pay a DPS of 0.45 cents after the 3-to-1 share consolidation exercise. Maintain BUY and our SOTP-based target price of $0.80.
No comments:
Post a Comment