New Exciting Overseas Education Limited IPO: Apply or not?

Overseas Education (OEL) has launched its initial public offering (IPO) to raise $56.1 million.

The 125 million shares to be issued, comprising of 3.75 million shares for the public and 121.25 million placement shares, are priced at 48 cents each. The issue price is 6.6 times Overseas Education’s earnings per share of 7.3 cents for the financial year ended Dec 31 2011. You can access the prospectus here.

Twenty-five million additional shares are also available under its over-allotment option.

OEL said that its policy is to pay dividends of at least 50% of the group’s net profit after tax to shareholders for each financial year.

OEL is a private foreign school offering the IB system of education. According to the prospectus, they have about 10% of the private education market in Singapore. The objective of the IPO is to raise funds to build a new campus.

I think the most interesting fact and perhaps most controveral would be the promise ” it intends to pay out at least 50% of its net profit after tax for each financial year” .   Some might think that they would have no funds for growth but it has proven itself to able to pay out about half of its profits for the last 3 years.

OEL Ipo 1

 

In terms of revenue, it is placed 3rd in Singapore.

Pros for applying the IPO

– The issue price is 6.6 X to PER while similar listed education companies like Raffles Education is at a forecast 30++X for 2012/13 and Informatics at 60X. There is thus more upward space for the price to adjust relative to past experience.

– The population of foreign students in Singapore is likely to be stable or upward following the publishing of the population white paper to bring the Singapore population to 6.9 million in 2030. Thus demand for private schools like OEL will remain high.

Cons for applying the IPO

– a high dividend payout policy might meant the company have excess cash or it might veil an attempt by the big shareholders to cash out slowly. Investors would have to make their own judgement on this.

– Both Raffles Education and Informatics are in the same industry as OEL although they target different segments of students.  Both Raffles Edu and Infomatics has not performed well over the years.

My Take on the IPO

– I will apply for the IPO but this will be a hit and run case. There seems to be considerable interest in the listing which should push it beyond its issue price.

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