Oriental Century Ltd - Opportunity for enrollment

􀂾 Story: Oriental Century (ORIC) is expected to announce their
1H results in mid-Aug.
􀂾 Point: We are not expecting any surprises in its 1H07 results as
operations have been stable. The positive factor pertaining to
education business is that revenue stream and costs are rather
stable and predictable once student enrollment is secured. We
understand that operations are very healthy.
􀂾 Relevance: This counter dipped by about 6.5% yesterday,
which we believe was possibly a spill over from some unrelated
market news/sentiments. We believe this presents a good
opportunity to accumulate the stock. Fundamentally, ORIC’s
business is still strong and management has indicated that there
was nothing contrary to this belief. Maintain BUY, TP: S$1.52 based
on 25x FY08F earnings with cash of S$0.18/share.
1H07 results preview – no surprises. We do not expect any surprises for its
1H07 results announcement next month. We believe the Group should be
delivering some growth, probably in the mid-single digit as there should
be some expenses incurred in relation to the establishment of Humen
Kindergarten prior to enrollment. In any case, as we have highlighted in
our initiation note on 19 Apr, ORIC’s 2H results tends to be stronger than
1H as the academic year starts in September.
Humen Kindergarten enrollment in progress. We understand from
management that enrollment for its new kindergarten in Humen,
Dongguan city, Guangdong Province, has begun and is progressing well.
The school semester is expected to start in September.
Revenue stream in secured and predictable. One factor we like about the
education business is its predictable nature, i.e. there is continuity in its
revenue stream for the year once student enrollment is secured. We
understand from management that operations are progressing on track.
Impact of unrelated market news present good entry opportunity.
Fundamentally, business is still strong and management has indicated that
there is nothing contrary to this belief. There was an article in a Chinese
financial magazine that the Chairman of Midas, Chen Weiping, had been
detained by authorities for alleged corruption charges which Midas
categorically denied. We believe this news caused some concern with
regards to Raffles Education whose share price also dropped by about 5%.
Chen Weiping was an ex-Executive Director of Raffles Ed whom had
resigned from Raffles Ed’s Board of Directors sometime in 2003/04. Raffles
Ed holds 21.4% of ORIC. We believed the market could have over-reacted
to this news, which is unrelated to ORIC. We think this episode, while
unfortunate and uncalled for, presents a good opportunity to accumulate.
Maintain BUY.