Posted by: donmihaihai | November 8, 2009

What’s wrong with Raffles Education Corp

Something is wrong with Raffles Education Corp(REC). But what’s wrong?

1) Because 1Q2010 NPAT dropped by 56%?

While the percentage dropped was scarcely, it is hardly a surprise as REC last year profits were never as good as the NPAT suggested. Their FY2009 profits were supported by disposal of land in OUC. Beside, OUC is not the same material like REC other segments. It is a low yielding business/Asset. REC might turn around, into schools like the other by pushing up the yield but at this moment, it is not happening yet. It takes time.

And of course REC is investing for the future in new emerging countries/places. But are they the same as their current operating places? One must realised that REC model work better in more developed countries or where a portion of the population reached a certain level of income. Their new places don’t seem can be the next growth driver. That says I do not believe that the increased in operating expenses belong to planting seeds in these places for the future. I would rather think that these belong to their old schools.

2) Because of trade receivables?

Trade receivables stood at $162 million and $180 million on 30/06/09 and 30/09/09 respectively as compare to Revenues of $202 million in FY2009 and $52 million for 1Q2010. That was a big jump from receivables of $77million and revenues of $190 million in FY2008. So that was scarcely? No and yes. Trade receivables were pretty stable and actually went down at 30/06/09 as shown in the AR reflecting the drop 4Q2009 revenues. Unless REC started to create fake revenues, trade receivables shouldn’t jump. Education business usually has good cashflow with short receivables. Which is why it is hard to believe that REC has collection problem where their advance collection jumped to $62 million in 1Q2010? Not logicable. But the next question is what causes the jump? If revenues don’t follow then, I believe REC is making their customers and students putting more cash upfront. This by itself is not going to be good.

And the “yes”? The main reasons for the jump in receivables belong to recoverable from previous owners of $14 millions and timing different of $58 million for sale of lands in OUC. Without questioning those recoverable, let ask why REC take so long and yet unable to collect money from sale that has been recorded in the book. Not just booked but with huge gain to shout about. How long? Why and who? I don’t know but it does point out that all players in the OUC are possible very weak, holding each other hands trying to figure a way out. Or it is just plain aggressive accounting on REC part.

Well 1) and 2) look serious but they are hardly as serious as 3)

3) Trying to cheat and do it very openly.

In FY2009 results presentation, REC come up with “core” profit. I have no problem with any “core” profit they put up as long as it is reasonable and consistent even if I may not agree with what should be “core”. And for FY2009 “core” profit, I certainly don’t agree that sales of land in OUC belong to core profit. Then I almost throw out when I saw REC do an about turn and shown that sale of land in OUC shouldn’t belong to “core” profit. REC was busying selling land in FY2009 but in 1Q2010,there was no sale of land. So by changing what is core, profit figures in FY2009 and 1Q2010 presentations become much better.

When thing is down, we will know the management better. For REC, the management is bending way too much and their true faces started to show up.

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Responses

  1. china financial daily has reported on the OUC problem,i advise REC shareholders to read it as it hurts REC business.

    also, Chew hua seng compensation change from only dividends to fixed salary implies that going forward there will be not much cash dividend which means they are running into a cashflow problem.

    This market darling’s myth has exploded. beware of his brother’s MIDAS, this could be another market darling.

  2. Hi there. I am not able to send u email. But i read your blog with great interest and was wondering if you can do an analysis on pac andes and FCOT reits. i have them both and would like see ur views on this fundamentally.

  3. Sorry Hellen,

    I have not look at them before and not interested in looking at them at this moment.

  4. be careful.. do not put it plainly and explicitly that they are cheating openly.

    It do you no good.

  5. Interesting insights, thanks for sharing.

  6. Hi fellows. Why in the first place must this education group chose the name “Raffles Education” ? Is is not as though Raffles Education has a nearly 200 years old history, producing all the top brains that one – and the only one – school in Singapore and the whole world is good at? This Raffles Education has given the impression that it”s education programme is producing top students when actually it is just a commercial entity riding on the famous name of the only one school, Raffles Institution, whose education programme is unmatched and rightly for only the top students from Singapore.

    Now, if you are a graduate of this so called fake Raffles, wouldn’t you be shy to be calling yourself a Raffles alumnus? Now will the real Rafflesian, please stand up?

    Raffles Education is by no means Raffles Institution. “Raffles Education” was used and coined by students, teachers and old boys of the RI to truly represent a high quality education which has and will continue to produce top students to serve society.

    To qualify for a true Raffles education programme, you must be really smart.
    Are you? Mind you, you can’t buy your way into Raffles!

    So now you have Raffles Institute of Higher Education to sound like Raffles Institution(RI) of higher education, Raffles International Colleges of SEA – again sounding like RI colleges of SEA..blah,blah,blah.

    How audacious?

  7. I approve your comment to shout at you.

    If you are smart and able — do something.

    If not — don’t come here.

    Next comment will be deleted.


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