Overseas Education

UOBKayhian on 30 Jun 2015

FY15F PE (x): 15.1
FY16F PE (x): 11.5

Share price has risen 5% since our stock upgrade in March. We see further scope to increase our earnings forecasts and target price. Overseas Education (OEL) has received temporary occupation permit (TOP) from the Building and Construction Authority (BCA). It has also raised school fees for the new term starting Aug 15 by a significant 9.1-30%. Positive adjustment to earnings forecasts. Given the higher school fees, we increase our 2015 and 2016 net profit estimates by 5.4% and 2.3% to S$23.4m and S$30.8m respectively. Maintain BUY with a higher target price of S$1.02 to account for the higher-than expected increase in school fees. Our target price is based on a two-stage DCF valuation (cost of equity: 8%, terminal growth: 1%), which implies 18.0x 2015F PE. We believe investors would appreciate OEL’s sustainable business (30-year lease for the new building), strong cash flow generation (fees are collected before term starts) and inelastic client demand (parents are most likely to let their children go through the entire curriculum regardless of fee adjustment).