occurrences
On June 22, 2020, Maple Leaf Education announced that it intends to acquire Canadian Nationality Schools (CIS) in Singapore. The target company is the sole shareholder of the CIS operator. The plan is to acquire 100% of the target company's shares. The total acquisition cost is S$680 million, corresponding to the EV/EBITDA of the 2020 academic year of about 13.23x. It will be paid in cash in two installments, of which S$440 million will be the share consideration. The first batch includes the acquisition of 90% of shares and repayment of existing debts (S$237 million). The second batch includes the acquisition of the remaining 10% of shares after the end of the 2021/2022 academic year. This portion of the consideration will be adjusted based on EBITDA and the number of students . The amount of bets is less than S$40 million, depending on whether the average number of payers in the 2020/2021 academic year reaches 3,500 and at least 3,250 people.
reviews
CIS is one of the largest for-profit high-end international schools in Singapore. Established in 1999, CIS is one of the largest for-profit high-end international schools in Singapore in terms of revenue and number of students enrolled. It operates under the Canadian International School brand and provides international education services for kindergarten to 12th grade students. It enrolls about 3,500 students, with an average tuition fee of about S$32,000 per year. There are two campuses with a capacity of 4115 students and a current utilization rate of 81%. CIS students perform well in the International Baccalaureate College Preparatory Course, with pass rates and average scores far exceeding the global average.
The merger and acquisition will directly enhance performance, and revenue and adjusted EBITDA are expected to increase by 30% +. After the merger and acquisition is completed, the student capacity is expected to increase by 4115 to about 71,300, an increase of 6%; the number of students enrolled is expected to increase by about 3,500 to about 47,000, an increase of 8%; the revenue of CIS in fiscal year 2019 is about 600 million yuan, adjusted EBITDA of about 260 million yuan for the 2020 academic year, and Maple Leaf revenue is expected to increase by 36%, and adjusted EBITDA is expected to increase 36% (including Huangyuan International School's revenue of RMB 58 million and RMB 09 billion).
The acquisition is in line with the 65th plan and is conducive to Southeast Asian expansion, strengthening international business, and is expected to have synergistic effects: ① Expanding into the attractive international school industry in Southeast Asia, which is consistent with the Group's 65-year plan goals; ② CIS assets are high-quality and profitable, with high brand value and market popularity. CIS trademarks have been registered in Indonesia, the Philippines, Myanmar and Thailand, and is in the process of applying for trademark registration in Vietnam. It is expected to directly increase performance in the medium to long term, which is conducive to the further expansion of Maple Leaf Education in the ASEAN region; ③ Strengthening international business. After the acquisition of CIS, non-Chinese regions will contribute 30% Revenue; ④ Maple Leaf and CIS are expected to have synergies in various aspects such as textbooks, courses, recruitment, and operation.
Investment suggestions: This acquisition is expected to strengthen the company's competitiveness and strengthen its position in the industry. Considering that the merger and acquisition has not yet been completed, and profit forecasts are not adjusted for the time being, we expect the company's FY20-22 net profit to be 735/8.49/996 million yuan respectively, corresponding to PE about 8.6x/7.5x/6.6x, maintaining the “buy” rating.
Risk warning: mergers and acquisitions have not been completed; the impact of the epidemic; policy risks; expanded enrollment falls short of expectations, etc.