S$0.435-RAED.SI
Raffles Education’s 4Q ended June ’2011 bottomline rose 27% yoy to S$28mln only because of fair value gain from its investment property OUC of S$50mln (S$77mln less tax provision of S$20mln and reversals of capital gains registered in earlier periods).
Otherwise, the company would be loss making to the tune of S$22mln, reflecting the continued strength of the S$ against the RMB, continued decline in the number of students taking Gao Kao in China, absence of government grants, start up costs associated with the set of new colleges and inflationary pressures in Asia. This came in below consensus expectations of a profit of $6-7mln.
Financial position also deteriorated with cash decreasing S$30.3mln to S$64.8mln against short term debts of S$164.4mln and long term debts of S$66.4mln.
Looking ahead, management expects the 13 new colleges set up over the last 2 years to start contributing positively over the next 2 years.
A final dividend of 0.45 cents a share was declared (up from nothing a year ago), representing 18% of profits but only provides a yield of 1% with the stock at 43.5 cents.
With the lower than expected 4Q ended June 2011 performance, we believe there could be downward revisions to consensus full year ending June 2012 profit estimate of $26-27mln. Even if we assume they can still do $26-27mln, its PE is still 14.3x versus STI’s 8x.
Recently, the stock had rallied strongly from 45 cents to 65 cents on the back of excitement of fair value gains being registered for OUC. However it has since given up all and even more of its gains with the stock currently trading at 43.5 cents (2 cents above its all time low reached on 22 Aug ’11).
The key point is that since reaching its peak of S$5.04 in early 2007, the stock has been stuck in a wellentrenched downtrend channel, notwithstanding oversold bounces along the way down.
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