SINGAPORE (Apr 23): RHB Research is initiating coverage on MindChamps PreSchool with a “buy” recommendation and a target price of 95 cents – representing a potential upside of more than 15%.
“Amongst the premium range of preschool centres [in Singapore], it has a dominant 38.5% share. This is built upon a strong brand name as well as a unique curriculum that inculcates passion in learning,” says analyst Juliana Cai in a report on Monday.
“On the macroeconomic front, we like the company’s strong branding position to tap into Asia’s rising middle class, and increasing willingness to spend on children’s education,” she adds.
Over the last year, MindChamps has signed new master franchisees in China, Myanmar, and Vietnam, where a burgeoning middle class has fuelled demand for the best education – starting with quality preschools.
“We believe MindChamps’ solid brand name in Singapore would put it in good stead to capture the growing early childhood education industry in these emerging markets,” Cai says.
But it is in Australia that the analyst believes MindChamps will see its key growth driver this year.
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“The group completed the acquisition of four preschools in Sydney, Australia for a total consideration of $17 million in November 2017,” Cai says. “These schools have existing operations and higher EBITDA margins compared to its preschools in Singapore. We estimate the full-year contribution from these schools to generate 20% growth in the group’s EBITDA in 2018.”
On the back of the opening of new schools and expansion of the franchisee network, Cai forecasts that MindChamps’ EDITDA will grow at a compound annual growth rate (CAGR) of 29% over FY17-20.
In FY17, MindChamps saw its revenue grow by 24% to $22.8 million, from $18.4 million ago.
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It maintained an operating profit of $6.3 million, even as earnings fell 15% to $4.6 million on the back of its merger and acquisition activities and one-off IPO expenses.
See: MindChamps reports 15% drop in FY17 earnings to $4.6 mil on IPO and M&A expenses
Earlier this month, the premium preschool education provider teamed up with Temasek-backed Palace Investments to create the MindChamps PreSchool Global Fund.
The global fund will invest in country preschool funds, which have been established to set up and acquire preschools under the MindChamps brand in individual countries.
See: MindChamps and Temasek subsidiary set up fund to acquire and set up preschools
One such country preschool fund is the MindChamps PreSchool China Fund, which is a joint venture inked in February between MindChamps and China First Capital Group. According to Cai, this local education fund targets to raise an initial tranche of US$200 million ($263 million).
“Notwithstanding the local education fund’s target and potential fundraising through the sale of limited partnership interests to limited partners, we estimate the US$50 million worth of funds committed by Palace Investment could potentially acquire up to 10-15 preschools,” Cai adds.
As at 12.03pm, shares of MindChamps are trading 1.5 cents up, or 1.8% higher, at 83 cents. This implies an estimated price-to-earnings ratio of 28.0 times and a dividend yield of 0.9% for FY18.
