SINGAPORE (May 27): RHB Research continues to keep MindChamps Preschool at “buy” at a lower target price of 83 cents compared to 87 cents previously, indicating a 26% upside plus 2.2% yield.
The reduced target price comes after cutting FY19-20F earnings by 7% and 11%, respectively, upon management indications that adopting SFRS 16 has negatively impacted the group’s 1Q19 pre-tax profit by about $90,000 or -15%.
In a May 17 report, analyst Juliana Cai says she nonetheless remains positive on MindChamps as she expects the group to start reaping returns from its investments as its operating leverage improves going forward.
Noting the recent completion of its latest round of preschool acquisitions in Sydney, Cai says the addition of eight company-owned-company-operated (COCO) preschool centres are expected to be earnings accretive based on management valuations of under 10 times P/E.
“Post 2019, earnings growth should largely be derived from rebranding of the acquired preschools in Australia, growing student count per centre, and improving cost efficiencies,” says the analyst.
“The group will also be looking to expand its franchise to Australia. This ought to help build the preschool network and brand name in the country. Earnings from the franchisees should also help to improve MindChamps’ overall margins and profitability,” she adds.
See also: Test debug host entity
As at 1:56am, shares in MindChamps are trading 0.8% lower at 64 cents or 2.4 times Dec 19F book value.
