Raffles Global financial analysis

Everyone knows that the education business has alot of potential given that unlike 30 years or so ago, it is becoming a thing of common place. Moreover, as developing economies grow, more and more people will seek education. I was always on the look out for education stocks and another blog i read highlighted that it might be on the uptrend now so i decided to take a closer look at it.

Raffles global has been on the downtrend over the past 2 year and from a technical perspective has broken out of its descent.

Immediate support is at S$0.355 and resistance is at S$0.39. It seems to have formed higher lows, higher highs and also broken out of its descending trend. On a pessimistic side it may trade like in the range of September to November 2012 before breaking support, but on the flip side, with current market optimism, it may trend within the range or continue on its uptrend. Irregardless, i will monitor over the next week.

A closer analysis into the volume revealed that stock volume has been high since Sept 12 2012. This was when billionare Oei Hong Leong bought 10 million shares to increase his stakeholding to 4.86%. This had stimulated market interest in the stock, and thereafter with general market conditions improving, volume was maintained at a relatively higher level of above 1 million. Noted that that stock rose again from 0.31 to 0.34 in late December when the same billionare Oei Hong Leong bought the stocks. What's his deal in this, is he a speculator or an investor? The points at where he bought were generally low, a large sell off from him could trigger an equal fall. Dividend of this stock at current price stands at 2.2%.

I decided to check into the fundamentals to assess the feasibility of investing in this stock given i missed the recent bottoming out. After all, there's still some risk given that if market optimism stops, money from penny stocks might be pulled out.

FY 30 June 2012 financials were released on 24th August 2012.  Noted that the stock went on a downtrend from 0.33 to 0.275 (16.7%) over the August 24 - September 11 period after the report was released. In contrast the market moved downwards 1.37% during this same period, indicating that in the absence of large market movement, this stock will be affected by company financials.

FYE 30 June 2012 FSA highlights:

• Other operating income increased 2396% from S$5.7m to S$126m . Due largely to S$90.1m of government grants
• This is in contrast to actual Revenue which decreased  10% from S$146m to S$131m.
• Operating expenses increased from S$67.9m to S$120.1m, due to provisions for land restructuring, this is compensated by government grant of S$90.1m. There is no actual gain given that the grants were meant to offset costs.
• NPAT decreased  to S$64.7m from S$19.28m despite large increase in core operating income.
• Noted that NPAT would have been worse if not for the currency gain of S$18.5m (FY11: S$32.0m). Poor FX control?
• 
  

Notes:

Lower enrolments in PRC’s Private Education System (“PES”) institutions due to:

a. the continuing decline in university-going students as a result of demographic changes because of the one-child policy; 

b. increase in the overall acceptance rate into National Education System (“NES”) universities and institutions; and

c. increasing number of students choosing to pursue higher education overseas.

Seems like the private education business in china doesn't seem to have alot of prospects. 60.8% of their business is in North Asia.

Group strategy is to expand in the growing ASEAN region and implement new strategies for the PRC region. Didn't really say what these strategies are. Makes you wonder why they would enter the PRC market in the first place given its demographics. 

This stock was worth S$9 in 2008 when financials were good. The financials since then hasn't deterioration proportionately meaning that the stock could have lost its original optimism priced in but could be reflect some value given its cheap price now. Given such a high price previously, I suspect if the market continues on an uptrend, this stock will rise despite it not being fundamentally great.

The question here to ask is that can this stock make a fundamental turn around? Such that you hold it for a few years. If not, is a trading buy, where you hold it for a few months more suitable? 

This stock in reality is still on a fundamental downtrend and will fall again when the next financials are release. Given today's relatively low price of S$0.38 and dividend yield of 2.2%, i might cautiously enter this stock  and monitor firm related news. It might take some averaging down and long run holding, but i believe given that it is in the business of education, there is some long run potential the stock might go up to high levels again in future, that is if management is success in turning around this firm over the next few years.