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Raffles Education ---time to load cheap??
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chaikau
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19-Jun-2007 14:51
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RAFFLES EDUCATION, ubs remains a BUY with target price $3.10 - Acquisition of Shanghai Zhongfa for S$50m . Shanghai Zhongfa is a vocational school and offers courses in arts, design, hospitality, digital media and traditional areas including electricals, electronics, mechanical engineering and business courses. The college currently has 2,700 students. The acquisition is made at a P/E of 18.2x based on profits for 12 months ending Aug-07 (based on minimum profit guarantee for the period). - Another strategic acquisition . We believe Raffles Education is making acquisitions both to improve its strategic positioning and further raising barriers for potential competition. The current acquisition could act as a feeder school into the company's tertiary education system for the PRC. - May be funded via convertible debt . We understand that the acquisition may be funded via convertible debt. The consideration is tied to minimum revenues of S$6.1m and net profits of S$2.75m for 12 months ending Aug-07 implying a historical P/E of 18.2x. - Valuation: Reiterate Buy 2, TP S$3.10 . With profits expected to grow at nearly 47% CAGR '07-09, we reiterate our Buy 2 rating. Our valuation is based on DDM, using CoE of 8.4% and terminal growth of 3%. The company trades at a discount of 15-20% to New Oriental based on the latter's FY-08 and '09 consensus P/E. |
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