Education SINGAPORE

April 3, 2013

Overseas Education Ltd

OEL SP / OEL.SI Current

NOT RATED
S$0.73 N/A N/A N/A
Conviction|

Market Cap

Avg Daily Turnover

Free Float

Target Previous Target Up/downside

US$243.3m
S$301.1m

US$1.80m
S$2.23m

24.3%
415.4 m shares

CIMB Analyst

Build it and they will come

Overseas Education Ltd (OEL) is a rare find on the SGX, with its resilient business model and little credit risk due to upfront collection of fees. A 50% dividend policy pays investors to wait for the next step up in earnings on completion of its new campus in 2015.

William TNG, CFA

T (65) 6210 8676 E william.tng@cimb.com

Company Visit Channel Check

Expert Opinion Customer Views

And why should we expect capacity expansion to drive earnings growth? Prove me wrong but we have yet to come across parents who do not put their childrens education first. A no-growth scenario suggests a target price of S$0.81, still sane when referenced to M&A transactions and listed Raffles Educations historical forward average P/E.

Ris compared to the more convenient location at Paterson Road.

Pays a dividend
The companys dividend policy is to pay out at least 50% of its profits for each financial year. Using FY12 results as a base, that would translate into a minimum DPS of 2.49 S cts, or 3.43% yield, comparable to the markets 3.2%. Dividends have room to grow post 2015 if enrolment does not disappoint. There is also upside from potential fee hikes.

An investment in education
OEL is listing for the right reason. All the net proceeds will be used to finance the land and construction of a new campus in Pasir Ris which will allow for a 27% increase in capacity when ready in 2015. The group is looking at taking on S$72.3m in debt to finance this expansion. Other than capacity constraints at its current campus, the new campus will obviously be up to date, sporting newer and better facilities. This should help buttress demand despite its perceived poorer location in Pasir

And much more

Once the campus is completed, an immediate increase in enrolment could see 27% growth in student strength. If this materialises, earnings are likely to see a significant step up even without any tuition fee hike. Outside Singapore, the group could seek regional expansion in Hong Kong in time to come.

Price Close

Relative to FSSTI (RHS)

Financial Summary
164
154 144

0.75
0.70 0.65

Dec-09A Revenue (S$m) Operating EBITDA (S$m) Net Profit (S$m) Core EPS (S$) Core EPS Growth FD Core P/E (x) DPS (S$) 14.48 0.02 3.18% 10.26 -183.4% 5.52 38.1% 75.4 21.2 13.0 0.049

Dec-10A 82.4 24.2 15.2 0.057 16.6% 12.42 0.02 3.18% 9.08 -145.1% 4.35 35.0%

Dec-11A 89.3 28.2 19.5 0.073 28.3% 9.68 0.03 4.25% 7.79 -145.4% 3.44 35.5%

Dec-12A 96.4 28.8 20.7 0.078 6.1% 9.12 0.07 8.12% 7.53 -140.1% 2.79 30.6%

0.60
0.55 0.50

134
124 114

0.45
80 0.40 60 40 20
Feb-13 Feb-13 Source: Bloomberg Mar-13 Mar-13

104
94

Vol m

Dividend Yield P/FCFE (x)

0.73

52-week share price range

0.48 0.73

Net Gearing P/BV (x) Recurring ROE

Current

*All per share data are based on pre-IPO shares outstanding of 265.4m. Company listed in February 2013. Historical yields are not representative as they are on a pre-IPO basis.
SOURCE: CIMB, COMPANY REPORTS

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA

Overseas Education Ltd

April 3, 2013

1. BACKGROUND 1.1 David met Irene

David met Irene but no, they did not tie the knot. Instead, Overseas Education Limited (OEL) was born. David Perry (Executive Chairman and CEO) and Irene Wong (Executive Director) met in 1987 on a consultancy project. In 1990, they recognised that there was strong demand for high-quality foreign system education in Singapore and proceeded to form Overseas Family School Limited (OFS). Irene, why didnt you meet me instead?
Figure 1: Group structure and subsidiaries

SOURCES: COMPANY REPORTS

1.2 Business model

What does OFS offer? OFS offers the K-12 International Baccalaureate (IB) programme to children aged 3-18. The school is currently the only through-train IB school in Singapore, offering the IB Primary Years Programme (PYP), IB Middle Years Programme (MYP) and the IB Diploma Programme (DP). OFS also offers the International General Certificate of Secondary Education (IGCSE). The school comprises four sections a) kindergarten (Pre-K to K2), b) elementary school (Grades 1 to 5), c) middle school (Grades 6 to 8) and d) high school (Grades 9 to 12). OFS offers the IB PYP to the kindergarten and elementary school students, the IB MYP to the middle school and Grades 9 and 10 high school students and the IB DP to the Grades 11 and 12 high school students. In addition to the IB programme, OFS offers the IGCSE examinations administered by Cambridge University to its students in Grade 10. In 2009, OFS integrated the Model United Nations (MUN) initiative into the IB curriculum. Again, OFS is the only foreign system school to offer this module. The schools campus is located at Paterson Road, close to the Orchard Road shopping belt. OFSs campus occupies blocks 25B-H, 25J and 25K.

Overseas Education Ltd

April 3, 2013

How about play? The school has a site nearby, at Harding Road where there is a soccer/rugby pitch, a mini-soccer pitch and a cricket training pitch. Credentials. The Western Association of Schools and Colleges (WASC) has accredited OFS in recognition of the quality of OFS programmes and operations. OFS is also registered with the Council of Private Education. On 2 November 2011, The Hague International Model United Nations approved the affiliation status of the OFS MUN programme. OFS believes that it is the only foreign system school to have been awarded a Certificate of Appreciation from the Academy of Singapore Teachers in recognition of the schools participation in the Ministry of Educations Teacher Work Attachment programme.

1.3 Earnings model

Revenue - OEL drives its revenue from six segments, of which the key contributor is tuition fees (95% of FY12 sales). Tuition fee revenue is determined by student enrolment and the ability to increase such fees. On the quantity side, OEL is currently facing a capacity constraint as its Paterson campus is nearly fully utilised. As for fees, the group has some pricing power and managed to raise tuition fees in the academic year commencing 2010 as well as that commencing 2012. (Note: The academic year starts in August and ends in June of the following year).
Figure 2: FY12 revenue breakdown (%)
100.0 90.0 80.0 70.0 60.0 50.0
40.0

30.0 20.0 10.0 0.0 Tuition fees Registration fees School bookshop sales Enrichment programme revenue Interest income Other revenue

SOURCES: COMPANY REPORTS

Figure 3: At full capacity

SOURCES: COMPANY REPORTS

Cost structure. The main cost in running a school is personnel expenses (74.1% of total operating expenses in FY12). Personnel cost has been on the rise as administrative staff count increased and the school added to its academic headcount. Higher pay and an increase in the number of academic staff explain part of the increase in personnel expenses for FY12.

Overseas Education Ltd

April 3, 2013

Figure 4: Operating cost breakdown (%)

80.0 70.0 60.0 50.0
40.0

30.0 20.0 10.0 0.0 Personnel expenses School lease rental Depreciation Cost of goods and sold amortisation Enrichment programme cost Utilities Upkeep and maintenance Other operating expenses

SOURCES: COMPANY REPORTS

Figure 5: Personnel expenses

2009 Personnel expenses (S$m) yoy growth (%) As % of total operating expenses 39.9 nm 66.8 2010 42.2 5.9 66.2 2011 44.8 6.2 68.0 2012 53.3 19.1 74.1

SOURCES: COMPANY REPORTS

Figure 6: Staff strength

SOURCES: COMPANY REPORTS

Overseas Education Ltd

April 3, 2013

2. STRENGTHS 2.1 Resilient business model

Even during the general downturn in the western economies as recently as 2008-09, OFS student enrolment did not dip as Singapore has been playing an increasingly important role as a regional business hub in the east. OFS also has pricing power, raising tuition fees by 6.1% for the junior school and 5.7% for the senior school in the 2010 academic year. In the 2012 academic year, fees were again raised by 8-15%.
Figure 7: Student enrolment trend

SOURCES: COMPANY REPORTS

2.2 Diversified student base

OFSs diversified student base, consisting of around 70 nationalities, provides the company with a resilient business model that is not overly dependent on the influx of students from any particular country in the world. Generally, no single nationality represents more than 20% of the schools total student population.
Figure 8: Student population by region

SOURCES: COMPANY REPORTS

2.3 Established track record

Over the two decades since its establishment, OFS has built a well-recognised name in the private education industry in Singapore, particularly among the K-12 foreign system schools. This is due to its long track record of providing K-12 education, ability to attract students of diverse nationality, strong curriculum, its assessment system and a strong and active Parent Association network. According to a Frost & Sullivan report, OFS is one of the top three foreign system schools in Singapore in terms of revenue and has 10.3% market share for the foreign system school industry in Singapore.

Overseas Education Ltd

April 3, 2013

Figure 9: Revenue data of foreign system schools

SOURCES: ACRA, FROST & SULLIVAN

OFS operates a school-wide, online assessment system that permits students, parents and teachers to assess the effectiveness of classes that have been taught during a school day. The online assessment system is used to support and promote student learning and accurately report student achievement on an ongoing basis, thereby placing the emphasis on the students individual learning. The academic performance of its students has been on a rising trend. Figure 10 below shows the percentages of students who obtained 35+ points (which would generally require the students to have obtained a majority of at least six A- grades and above) out of a total of 45 measured against the worldwide percentages of DP students over the last three academic years.
Figure 10: Improving academic scores

SOURCES: COMPANY REPORTS

Overseas Education Ltd

April 3, 2013

3. RISKS 3.1 Will my classroom still be there?

OFS currently occupies the Paterson Road site in the heart of Orchard Road under a 3-year lease from the Singapore Land Authority (SLA). The school has been operating from this site since it started operations in September 1991. The lease is generally on 3-year terms. The current lease expires on 24 July 2013. The SLA has indicated that the lease will be renewed till 30 June 2015 but this will be the last and final extension of stay based on current tenanted boundaries. With the extension beginning 25 July 2013, a valuation will be carried out by the Chief Valuer prior to the commencement of the lease. The lease expense is likely to rise significantly. The current annual rental expense for the Paterson Road site is approximately S$6.6m or 9.2% of FY12 total operating expenses, making it the second largest expense. To mitigate this risk, expand its student intake and attract more students, OFS has been prequalified for a site at Pasir Ris where a new school campus will be built. Construction should take about two years and, assuming no hiccups, should tie in with the expiry of the renewed lease at Paterson Road.

3.2 Everyone fears a downturn

Prolonged disruption to the western economies may adversely impact the economic situation in Singapore, causing a decrease in foreign direct investments and, therefore, a drop in the number of expatriate families living and working in Singapore and the number of school-going children. The economic downturn may also adversely affect the financial condition of companies which employ the parents of OFS students as well as the financial status of these parents. These may, in turn, result in the relocation of these expatriate families or the retrenchment of these parents, resulting in a decline in student enrolment and a revenue drop.

3.3 What if Singapore turns xenophobic?

OFS would be affected by changes in Singapore government policies affecting foreign direct investments, foreign talent and/or immigration. The foreign system schools are part of the foreign direct investment infrastructure of Singapore and its establishment is part of the governments strategy to attract foreign direct investments and foreign talent. Singapore generally has a relatively open immigration policy towards foreign talent in order to support the expertise and skills necessary to sustain a resilient and vibrant economy. However, due to the huge inflow of foreigners working in Singapore over the past few years, the government recently tightened the immigration framework which aims to raise the quality of the workforce and calibrate the influx of foreign talent. Such changes could result in reduced foreign direct investments and reduced inflow of foreign talent, which would affect OFSs student enrolment. On the cost side, such changes could result in the reduced availability of foreign academic personnel and potential foreign applicants for academic positions in OFS, leading to possibly higher academic staff costs (74.1% of total operating expenses in FY12) and possibly, the inability to comply with IB programme requirements or regulatory requirements for teaching staff strength and quality.

Overseas Education Ltd

April 3, 2013

4. FINANCIALS 4.1 Financial summary

Revenue for OEL has been rising at a rate of 8-9% p.a. since 2009, with 95-97% of revenue coming from tuition fees which have been increasing yoy. We believe that the rise in tuition fees comes from two key drivers fee hikes and the increase in student enrolment. Key contributors to operating expenses include personnel expenses, school lease rental and depreciation. Operating expenses has been rising between 2009 and 2012 but at a slower pace than revenue growth. As a result, operating and net margins have expanded over the years. OPM averaged 24% in FY09-12 while average net margin over the similar period was 20%. Cash flow generation is strong, with OEL seeing positive operating cash flows in 2009-2012. In addition, OEL has no debt and remains in a net cash position.
Figure 11: Strong operating cash flow
35 30 25 20 15

S$m

10 5 2009
(5)

2010

2011

2012

(10) (15) (20) Operating cash flow Investing cash flow Financing cash flow Net change in cash

SOURCES: CIMB, COMPANY REPORTS

Return on equity for OEL has been over 30% in FY09-12.

4.2 Dividend policy 50% payout ratio

OELs dividend policy is to pay out at least 50.0% of net profit for each financial year. Its board may recommend annual dividends, subject to the approval of shareholders, in an annual general meeting. An interim dividend may be declared without the approval of shareholders. The dividend policy may be changed by the board at any time.

4.3 FY12 results

Revenue increased by nearly 8% to S$96.4m in FY12, driven by a 7% rise in tuition fee revenue. Tuition fees were raised by 8-15% across the school for the academic year starting August 2012. Registration fees spiked 103% due to the doubling of the registration fee to S$2,000 effective 9 March 2012. Personnel expenses rose 19.1%, mainly due to higher headcount, which led to an increase in salaries, bonuses, CPF contributions and other short-term benefits. Academic staff costs rose due to a rise in the number of academic personnel, in line with the increase in average student enrolment and salary adjustments made for all academic personnel including promotion-related adjustments. Net profit rose 6.1%. Cash flow generation remained strong, with operating cash flow of S$25.6m in FY12 versus S$28.0m in FY11. In line with its 50% dividend payout policy, a final dividend of 2.75 S cts was proposed. The dividends are payable on 21 May 2013.

Overseas Education Ltd

April 3, 2013

5. COMPETITION
Under the Compulsory Education Act (Chapter 51) of Singapore, Singaporean students are generally not allowed to attend foreign system schools except under limited circumstances. In contrast, foreign students are not prohibited from attending local schools. Some local schools have also established programmes for international students. Hence, OFS competes for a limited pool of foreign students from the resident expatriate population in Singapore. OFS faces competition from other schools in Singapore that offer any combination or all of the three IB programmes PYP, MP and DP. Currently, there are 27 IB World Schools in Singapore offering one or more of the three IB programmes. Of these 27 schools, 17 schools offer the PYP, six schools offer the MYP and 19 schools offer the DP. OFS is one of only five schools in Singapore to offer all three IB programmes in a single location. The schools compete primarily on the quality of the curriculum, facilities and academic personnel, competitiveness of school fees and reputation. Competition is likely to increase as existing foreign system schools which already offer all or a combination of the three IB programmes may become more competitive. Existing foreign system schools which offer a combination of the three IB programmes may extend their curriculum to offer all three IB programmes while those that do not offer the IB programmes may seek authorisation to offer these programmes. IB World Schools which currently do not have a local presence may decide to enter the education market in Singapore. The company cites as its key competitors the Singapore American School, United World College of South East Asia, Tanglin Trust School, Canadian International School and Australian International School, none of which is a listed entity.

Overseas Education Ltd

April 3, 2013

6. OUTLOOK 6.1 Capacity expansion

OEL plans to build at Pasir Ris a new school campus which is approximately 5.0ha in size and has a tenure of 30 years from the date OFS accepts the offer to lease. The estimated construction time is two years. The new campus will be able to accommodate approximately 4,800 students versus 3,779 in 1H12, a 27% increase. The new campus will have to be ready by 30 June 2015.

6.2 Industry outlook positive

Based on Frost & Sullivans study commissioned by OEL for its IPO, the FSS industry size increased by 8.4% in FY10 and 13.7% in FY11. Revenue hit S$866.1m in FY10. The key players are the Singapore American School and United World College of South East Asia, each generating revenues in excess of S$100m. OFS was the third largest player with 10.3% market share. In terms of industry concentration, the top 5 FSSs in Singapore accounted 53.1% of total industry revenue while the top 3 players accounted for 37.3% of the market. Frost & Sullivan estimates that the total student population in the FSS industry in Singapore will rise from approximately 42,504 in Academic Year 2011/2012 to about 58,051 in Academic Year 2015/2016, or a CAGR of approximately 8.1%. It also forecasts that the FSS industry will expand from S$866.1m in FY11 to about S$1,430m in FY15, a CAGR of c.13.4%. This growth will be led by demand drivers such as economic growth leading to an increase in the population of foreigners, socioeconomic factors and the demand for the holistic development of students.
Figure 12: Projected FSS student population growth

SOURCES: FROST & SULLIVAN

Figure 13: Projected FSS industry growth

SOURCES: FROST & SULLIVAN

6.3 Going abroad

OEL intends to use its management expertise and extensive experience in the education industry in Singapore as a springboard to expand to overseas markets such as Hong Kong and/or China. This may be via collaboration with suitable partners through strategic alliances, joint ventures, acquisitions and investments. The company has not identified any specific opportunities. However, it has incorporated OFSHK (dormant since incorporation) to reserve the name of the company for the groups proposed expansion into Hong Kong when the conditions there are favourable.

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Overseas Education Ltd

April 3, 2013

7. IPO HISTORY
OEL was listed on 7 February 2013 at an offer price of S$0.48, pricing the IPO at a historical P/E ratio of 6.6x and historical P/BV of 1.73x (on post IPO issued capital assuming that the over-allotment option was not exercised). The company offered 125m new shares with an over-allotment option of 25m new shares. The over-allotment option was exercised post IPO, bringing the total issued capital post IPO to 415.4m shares. The key shareholders are founders David Perry (32.6% stake via PDAC Private Limited) and Irene Wong (31.3% stake via WLH Private Limited). The shares are subject to moratorium for six months from the listing date. There are no family relationships among the directors and substantial shareholders. The IPO attracted strong institutional interest. According to the companys press release, the following funds applied for and were allotted 5.0% or more of the invitation shares of 125m:
Figure 14: Institutional shareholders
Fund JPMorgan Asset Management (Singapore) Eastspring Investments (Singapore) Limited Hong Leong Fund Management Sdn Bhd FIL Investment Management (Hong Kong) Havenport Asset Management Pte Ltd Manulife Asset Management (Singapore) Pte Ltd Sandstone Capital Pte Ltd No. of shares allocated 13.8 13.8 13.8 13.8 11.0 8.0 8.0
SOURCES: COMPANY REPORTS

According to Bloomberg data, the largest institutional shareholders are Prudential (6.78%) and FIL Investment (5.0%). Bloomberg calculates a free float of 24.3% for OEL.

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Overseas Education Ltd

April 3, 2013

8. VALUATION & RECOMMENDATION 8.1 Part REIT, part equity? Is my imagination getting the better of me?
OEL can be thought of as a quasi-REIT given its declared 50% dividend payout policy. At the same time, if the winds are in its favour, revenue could jump 27% in FY16 just from the incremental capacity from its new school at Pasir Ris. Of course, one could argue that assuming the 27% incremental capacity addition can be exhausted in a year could be too blue a sky scenario. We derive a possible 13.0% profit growth potential based on the simplified assumptions shown in Figure 15? below.
Figure 15: Scenario analysis
Dec-12A Revenue (S$m) Assumed number of students (1) Revenue per student (S$) Designed new capacity comes on stream mid 2015 Incremental capacity Potential student strength in 2016 Potential revenue in 2016 (Assumes no hike in tuition fees) Operating profit (S$m) OPM (%) - (2) Taxation (S$m) Tax rate (Dec-12F, assumed) Net profit (S$m) Growth (%) (1) As at 1H12 (2) Assume OPM maintained on net savings from depreciation and interest expense offsets rental expense if lease continues. Also assume that potential fee hikes can offset salary hikes, leaving only a quantity effect. 24.5 25.4 (3.8) 15.6 20.7 27.8 25.4 (4.4) 16.0 23.3 13.0 96.4 3,779 25,509 4,800 1,021 4,290 109.4 Dec-16E

(Assume that the incremental capacity of 1,021 is filled over 2 years, ie, incremental addition is 511 per year)

SOURCES: CIMB, COMPANY REPORTS

We argue that education is as earnings resilient as healthcare and derive a back-of-the-envelope target price calculation using DDM, taking reference from Parkway Life REIT parameters with some adjustments. This is shown in Figure 16 below.

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Overseas Education Ltd

April 3, 2013

Figure 16: Back-of-the-envelope DDM calculation

2014 Year DPU (Scts) Cost of equity Disc. DPU 1 2.49 6.7% 2.33 2015 2 2.49 6.7% 2.19 2016 3 2.49 6.7% 2.05 2017 4 2.49 6.7% 1.92 2018 5 2.49 6.7% 1.80 2019 6 2.59 6.7% 1.76

Terminal grow th: Terminal value PV of terminal value

4.0% (High end of CIMB inflation forecast for 2014 of 3.0-4.30%) 97.54 70.67

Total equity value (Scts) In S$: Assum ptions Risk free rate Equity risk premium Beta Cost of equity

80.98 0.81

3.0% } 4.3% } CIMB 0.85 } 6.66%

Assume base case DPS of 2.49 Scts (FY12 S$20.7m on a 50% payout over issued cap of 415.4m) No beta available as OEL is just listed. Proxy using PREIT's assumed beta due to similar defensive nature of business
SOURCES: CIMB, COMPANY REPORTS

A target price of S$0.81 appears sane as it translates into a P/E of 16.3x (assuming EPS of 4.97 S cts based on a no-growth scenario of S$20.7m net profit). Why sane? In the Singapore context, Raffles Education (listed education play offering design and business courses) acquired a 60% stake in Hartford (then listed company offering business management programmes in partnership with foreign universities and its own diploma in business administration programme) in April 2004 for S$8.6m. That worked out to a P/E valuation of 16x and Hartford turned in only S$0.89m profits then. We understand that OEL does not offer the same tax transparency as a REIT and we compensate for this by assuming a base case of no growth in EPS in our back-of-the-envelope calculation. At 16x, the valuation for OEL would also be cheaper than Raffles Educations despite a better financial performance. Raffles Education trades at an average historical forward P/E of 23x. Our rough estimates are likely conservative as: 1) Similar-sized The American School managed to grow its intake by 25% and raise school fees by 15% when they moved to a new campus in 1999 2) OFS has approval to cater to 4,800 students at its new campus but has planned for a higher capacity 3) Compared to peers, OFS fees are generally 20% lower, leaving room for further fee hikes which can be justified by the new campus. Parents have been informed that fees will be raised yearly.

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April 3, 2013

Figure 17: Raffles Educations historical forward average P/E

60.0

50.0

40.0

+1sd = 27.4x 30.0 Av erage = 22.8x 20.0 -1sd = 18.3x 10.0

0.0 Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

SOURCES: BLOOMBERG, COMPANY REPORTS

Figure 18: OEL financials compared to Raffles Education

OEL vs. Raffles Eduation (Historical FY12 data) Sales (S$m) OPM(%) OEL 96 25% Raffles Education 131 23% *based on final FY12 dividend declared for OEL ROE(%) 31% -14% Div Yield* (%) 4% N.A Gearing Net Cash 43%

SOURCES: BLOOMBERG, COMPANY REPORTS

Figure 19: Peers Comparison

Bloomberg Ticker Price (lcl curr) Target Price (lcl curr) Market Cap (US$ m) Core P/E (x) CY2013 CY2014 3-year EPS CAGR (%) P/BV (x) CY2013 Recurring ROE (%) CY2013 Dividend Yield (%) CY2013

Company Singapore Informatics Education Ltd Raffles Education Corp Ltd TMC Education Corp Ltd Malaysia HELP International Corp SEG International BHD Other Asia Pacific Navitas Ltd Educomp Solutions Ltd MegaStudy Co Ltd USA Career Education Corp Corinthian Colleges Inc Education Management Corp ITT Educational Services Inc New Oriental Education & Techn Strayer Education Inc Simple average

Recom.

INFO SP RLS SP TMCH SP

NR NR NR

0.10 0.35 0.06

NA NA NA

120 291 9

na 34.5 na

na 23.0 na

na na na

na 0.66 na

na na na

na na na

HELP MK SYS MK

Outperform NR

1.92 1.68

2.52 NA

88 349

12.9 16.8

10.4 16.8

na na

1.74 3.57

14.5% 28.3%

1.0% 3.2%

NVT AU EDSL IN 072870 KS

NR NR NR

5.33 69.30 72,800

NA NA NA

2,095 156 413

23.1 3.8 7.3

19.1 4.9 7.3

-8.8% -42.6% 9.0%

8.02 0.29 1.10

35.6% 5.1% 17.0%

3.7% 3.4% 5.1%

CECO US COCO US EDMC US ESI US EDU US STRA US

NR NR NR NR NR NR

2.24 1.98 3.52 12.61 17.51 47.90

NA NA NA NA NA NA

150 170 439 294 2,773 544

na 7.9 10.1 3.4 15.6 11.6 13.4

na 6.0 10.1 4.4 12.7 11.5 11.5

-58.8% 56.8% na -24.4% -9.7% -3.3% -10.2%

0.25 0.34 0.18 1.34 3.05 8.24 2.40

-13.2% 3.8% 9.9% 49.9% 19.3% 95.7% 24.2%

0.0% 0.0% na 0.0% 1.3% 8.4% 2.6%

SOURCES: CIMB, COMPANY REPORTS, BLOOMBERG

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April 3, 2013

9. APPENDIX A TECHNICAL TERMS

CIE CPE DP Foreign system school GCE O-Level IB University of Cambridge International Examinations, a provider of international qualifications for students aged 14 to 19 Council for Private Education, a statutory board established under the Private Education Act with the legislative power to regulate the private education sector International Baccalaureate Diploma Programme, generally for students aged 16 to 19 in Grades 11 and 12 A school that follows a system or curriculum that is similar to that of countries other than Singapore or which follows an international curriculum General Certificate of Education (Ordinary Level) is a subject-based qualification which originated from the UK, generally for students aged 14 to 16 International Baccalaureate, formerly the International Baccalaureate Organisation (IBO), an international educational foundation founded in 1968 and headquartered in Geneva, Switzerland. IB can refer to the organisation itself, any of the three programmes or the diploma or certificates awarded at the end of the DP A school offering any of the three IB programmes, namely, the PYP, MYP and DP International General Certificate of Secondary Education, developed by CIE in 1988, is the international alternative to the UK General Certificate of Secondary Education and is an internationally recognised qualification for school students, typically in the ages of 14 to 16 Comprises Kindergarten and Elementary School Kindergarten 1, generally for students at the age of 4 Kindergarten 2, generally for students at the age of 5 K-12 Education, a designation for the sum of primary and secondary education, used in countries such as the USA, Canada, Australia and New Zealand, and an expression that is the abbreviation of Kindergarten for students aged 4 to 6, to Grade 12 for students aged 16 to 19 Model United Nations, an academic simulation of the United Nations that aims to educate participants about current events, topics in international relations, diplomacy and the United Nations agenda International Baccalaureate Middle Years Programme, generally for students aged 11 to 16 in Grades 6 to 10 Pre-Kindergarten, generally for students at the age of 3 International Baccalaureate Primary Years Programme, generally for students aged 3 to 12 in Pre-K to Grade 5 Comprises Middle and High Schools The Hague International Model United Nations, a non-governmental organisation associated with the United Nations that seeks to uphold among the young the values of the United Nations Charter Western Association of Schools and Colleges, one of six regional associations in the USA that provides accreditation to educational institutions such as public and private schools, colleges, and universities in California, Hawaii, Guam, the Commonwealth of the Northern Marianas, American Samoa, the Federated States of Micronesia, the Republic of the Marshall Islands, Fiji, and East Asia

IB World School IGCSE

Junior school K-1 K-2 K-12

MUN

MYP Pre-K PYP Senior school THIMUN

WASC

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10. APPENDIX B SINGAPORE EDUCATION BACKGROUND

The private education industry in Singapore is regulated by the CPE, a statutory board established under the Private Education Act. The Private Education Act gives CPE legislative powers to regulate and accredit private education institutions in Singapore to ensure the provision of quality education. All private education institutions operating in or from Singapore must be registered with CPE. CPE registrations are generally valid for a period of four years. Under the Compulsory Education Act (Chapter 51) of Singapore, Singaporean students are generally not allowed to attend foreign system schools except under limited circumstances, whereas foreign students are not prohibited from attending local schools. Some local schools have also established programmes for international students. The Foreign System Schools (FSS) primarily cater to foreign students and children of Singapore permanent residents. Singapore citizens who wish to enrol in FSSs (excluding pre-school) require MOEs approval to do so. In 2011, there were a total of 33 FSSs in Singapore. FSSs in Singapore can be categorised as FSSs with globally recognised curriculum (GRC) and FSSs with country accepted curriculum (CAC). FSSs with CAC offers curriculums of a specific country with a targeted student population from a specific country background while FSSs with GRC offer at least one internationally recognised curriculum and/or curriculum that can lead to an internationally recognised diploma certificate such as IB diploma. As at 31 December 2011, FSSs with CAC are: Lyce Franais de Singapour The Singapore Japanese School Hollandse School Yuvabharathi International School Swiss School in Singapore (SSS) Singapore Korean International School (SKS) Waseda Shibuya Senior High School Sekolah Indonesia Singapura (SIS) FSSs with GRC can be subdivided into multi-national FSSs and semi-national FSSs. Multi-national FSSs are schools which encourage a multi-cultural environment where students are exposed to diverse cultural experiences while semi-national FSSs are schools that are less diverse in terms of the nationality. As at 31 December 2011, multi-national FSSs with GRC are: Canadian International School (CIS) Chatsworth International School Eton House International School and Preschool (Broadrick campus) Overseas Family School (OFS) Integrated International School (IIS) ISS International School Singapore (ISS) International Community School (Singapore) One World International School Singapore Nexus International School Stamford American International School United World College of South East Asia (UWCSEA)

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As at 31 December 2011, semi-national FSSs with GRC are: Anglo-Chinese School (International) Singapore Australian International School (AIS) Avondale Grammar School Singapore (AGS) Chinese International School Singapore (CNIS) Dover Court Preparatory School DPS International School Singapore German European School Singapore (GESS) Global Indian International School Singapore (GIIS) Hwa Chong International School (HCIS) Manasseh Meyer School NPS International Singapore American School (SAS) SJI International School (SJII) Tanglin Trust School (TTS)

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11. APPENDIX C MORE ABOUT IB

The IB is a non-profit educational foundation founded in 1968 with its headquarters in Geneva, Switzerland. Through a group of teachers at the International School of Geneva, and with the assistance from several other international schools, the DP was developed by the IB as a single programme for internationally mobile students aged 16 to 19 to prepare them for entry into universities. Towards this objective, the DP consisted of a common pre-university curriculum and a common set of external examinations for students in schools around the world. In 1994, the IB added the MYP to its programme for students aged 11 to 16. In 1997, the PYP was developed by the IB as a curriculum for students aged 3 to 12, to give younger students access to an IB education. A common continuum running through the three IB programmes, namely, the PYP, MYP and DP, is that the IB strives to inculcate international-mindedness in students through its curriculum and teaching methodology which aim to foster and develop an inquiring mind, critical thinking, reflection and research skills. The IB also promotes inter-cultural understanding and respect as an integral part of students life, in addition to an understanding of their own cultural and national identity. To this end, the IB works with schools, governments and international organisations to develop challenging programmes of international education. Although the first IB World Schools were predominantly private international schools, they included a very small number of private national institutions and schools belonging to state education departments. Today, over half of all IB World Schools are state schools. The IB works with 3,491 schools in 144 countries to offer the three IB programmes to approximately 1,065,000 students aged 3 to 19 years, namely, its flagship pre-university DP, MYP and PYP. The IB has seen a significant growth in the past five years, from December 2007 to December 2012, where the PYP, MYP and DP have seen an approximately 168.3%, 103.3% and 54.4% increase in the number of schools who offer their respective programmes. To become an IB World School able to offer any of the three IB programmes, namely the PYP, MYP and DP, a school must be authorised by the IB for each of the IB programmes. The authorisation process will usually take two to three years to complete. Upon acceptance of the application for authorisation by the school, there will be a verification visit by an IB visiting team. Once the school has been authorised, it will acquire the status of an IB World School generally for a period of five years. Following authorisation, schools will undergo an evaluation process prior to a renewal of the authorisation to ensure that the requisite standards and practices of the programmes are being maintained. Programmes The IB offers three programmes for their students between the ages of 3 and 19. The programmes can be offered individually or as a continuum by the IB World Schools. (i) The Primary Years Programme (PYP) for students aged 3 to 12 started in 1997. The PYPs purpose is to produce a common international curriculum and to develop international-mindedness on the part of children. (ii) The Middle Years Programme (MYP) for students aged 11 to 16 started in 1994. The aim is to develop a curriculum encouraging international awareness with emphasis on the skills, attitudes, knowledge and understanding needed to participate in a global society. The MYP of the IB is a course of study designed to meet the international educational requirements of students aged 11 to 16. (iii) The Diploma Programme (DP) for students aged 16 to 19 started in 1968. The DP was the first IB programme to be developed by the IB. It is designed to be an academically challenging and balanced programme of education with pre-university examinations for students aged 16 to 19. The DP is a comprehensive two year pre-university course that generally allows students to fulfil the requirements of various national education systems.
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12. APPENDIX D EXECUTIVE DIRECTORS

David Alan Perry is the Executive Chairman and CEO of the Company and is responsible for the overall business development and strategic planning of the Group. He is one of the founders of the school and has been closely associated with the schools growth since the start of OFS. Before moving to Singapore in 1987 and the founding of OFS in 1991, Mr. Perry was the proprietor of Project Systems Associates from 1986 to 1987, providing technology consultancy services for construction industry project management in Auckland, New Zealand. From 1983 to 1985, he was the founder and managing director of Feedback Computers Limited, an Apple Computer dealership. From 1976 to 1985, he was a partner of Resource Control Associates, a computer original equipment manufacturing consultancy and software development company. From 1966 to 1982, Mr. Perry was the managing director of Opotiki Textiles Limited, a garment manufacturing, wholesaling and exporting company. Mr. Perry received a Certificate of Entrance Qualification from the University of New Zealand in 1959. Irene Wong Lok Hiong is Executive Director and is responsible for the overall business and operations of OFS. Ms. Wong is one of the founders of the school and has also been closely associated with the schools growth since the start of OFS. She sits on the Executive Board of the school and the board of directors of OFS. Within the OFS management structure, Ms. Wong is the CEO of OFS and is responsible for all matters relating to the operation of the school. OFSs Academic Director, the four Principals, the General Manager and the Schools Registrar all report to her. Ms. Wong has over 35 years of experience in the management of foreign system schools in Singapore. Before the founding of OFS in 1991, she was the Administration Manager of International School (S) Pte Ltd from 1981 to 1990, where she was responsible for the administration of all non-academic matters in the school. From 1977 to 1981, she was the Office Manager of Tanglin Trust Limited where she oversaw the administration of all non-academic matters relating to all the Tanglin Trust Limited schools. Ms. Wong received a Certificate in Management Accounting from the London Chamber of Commerce and Industry in 1976.

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Recommendation Framework #1 *
Stock OUTPERFORM: The stock's total return is expected to exceed a relevant benchmark's total return by 5% or more over the next 12 months. NEUTRAL: The stock's total return is expected to be within +/-5% of a relevant benchmark's total return. UNDERPERFORM: The stock's total return is expected to be below a relevant benchmark's total return by 5% or more over the next 12 months. TRADING BUY: The stock's total return is expected to exceed a relevant benchmark's total return by 5% or more over the next 3 months. TRADING SELL: The stock's total return is expected to be below a relevant benchmark's total return by 5% or more over the next 3 months. Sector OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index over the next 12 months. NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months. UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index over the next 12 months. TRADING BUY: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index over the next 3 months. TRADING SELL: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index over the next 3 months.

* This framework only applies to stocks listed on the Singapore Stock Exchange, Bursa Malaysia, Stock Exchange of Thailand, Jakarta Stock Exchange, Australian Securities Exchange, Korea Exchange, Taiwan Stock Exchange and National Stock Exchange of India/Bombay Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons. CIMB Research Pte Ltd (Co. Reg. No. 198701620M)

Recommendation Framework #2 **
Stock OUTPERFORM: Expected positive total returns of 10% or more over the next 12 months. NEUTRAL: Expected total returns of between -10% and +10% over the next 12 months. Sector OVERWEIGHT: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of +10% or better over the next 12 months. NEUTRAL: The industry, as defined by the analyst's coverage universe, has either (i) an equal number of stocks that are expected to have total returns of +10% (or better) or -10% (or worse), or (ii) stocks that are predominantly expected to have total returns that will range from +10% to -10%; both over the next 12 months. UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of -10% or worse over the next 12 months. TRADING BUY: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of +10% or better over the next 3 months. TRADING SELL: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of -10% or worse over the next 3 months.

UNDERPERFORM: Expected negative total returns of 10% or more over the next 12 months. TRADING BUY: Expected positive total returns of 10% or more over the next 3 months. TRADING SELL: Expected negative total returns of 10% or more over the next 3 months.

** This framework only applies to stocks listed on the Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons. Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (IOD) in 2011. AAV not available, ADVANC - Excellent, AMATA - Very Good, AOT - Excellent, AP - Very Good, BANPU - Excellent , BAY - Excellent , BBL - Excellent, BCH - Good, BEC - Very Good, BECL - Very Good, BGH - not available, BH - Very Good, BIGC - Very Good, BTS - Very Good, CCET - Good, CK - Very Good, CPALL - Very Good, CPF - Very Good, CPN - Excellent, DELTA - Very Good, DTAC - Very Good, GLOBAL - not available, GLOW - Very Good, GRAMMY Excellent, HANA - Very Good, HEMRAJ - Excellent, HMPRO - Very Good, INTUCH Very Good, ITD - Good, IVL - Very Good, JAS Very Good, KAMART not available, KBANK - Excellent, KK - Excellent, KTB - Excellent, LH - Very Good, LPN - Excellent, MAJOR - Very Good, MCOT - Excellent, MINT - Very Good, PS - Excellent, PSL Excellent, PTT - Excellent, PTTGC - not available, PTTEP - Excellent, QH - Excellent, RATCH - Excellent, ROBINS - Excellent, RS - Excellent, SC Excellent, SCB - Excellent, SCC - Excellent, SCCC - Very Good, SIRI - Very Good, SPALI - Very Good, STA - Very Good, STEC - Very Good, TCAP - Very Good, THAI - Very Good, THCOM Very Good, TISCO - Excellent, TMB - Excellent, TOP - Excellent, TRUE Very Good, TUF - Very Good, WORK - Good.

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