Maple Leaf Education announced the acquisition of the entire issued share capital of Singapore's Canadian International School (CIS) for S $443 million.
CIS is Singapore's largest high-end Kmuri 12 private international school, with a market share of about 20 per cent. The CIS brand is also well known in the ASEAN region.
We expect that CIS's IB curriculum and Maple Leaf Education's own world school curriculum will complement each other.
The rating was upgraded to "overweight", and the new discounted cash flow was priced at HK $2.9.
The total purchase price is S $443 million.
Maple Leaf Education announces the entire issued share capital of Singapore Canadian International School (CIS) at S $443 million. Maple Leaf Education will also assume S $237 million of CIS's existing debt. The transaction will be paid in two installments (90% and 10%, respectively) and is expected to be completed in July 2022. The acquisition also has a S $4000 bet agreement that requires CIS to meet its target of an average of 3500 paying students by the 2021 academic year, with a minimum target of 3250, with a pro rata bet. According to Maple Leaf Education data, the deal is equivalent to 14.75 times FY20 price-to-earnings ratio and 13.2 times FY20 EV/EBITDA, which we think is within a reasonable range. Most of the money will be paid through bank loans and the rest will come from Maple Leaf Education's cash reserves in the future. CIS will be merged from September 2020.
Singapore's leading Advanced Kmuri 12 International School
CIS is the largest high-end Kmuri 12 private international school in Singapore. By the end of May 2020, the company's market share was about 20% and the number of students was 3457. CIS's revenue for fiscal year 19 was S $118 million, an increase of 10% over the same period last year, and its after-tax profit was S $2060. Maple Leaf Education expects CIS revenue to grow by 10% year-on-year in the next few years. FY20 profits will reach S $3000. Maple Leaf Education will help CIS repay debt and reduce financial costs. CIS offers IB courses for students with an average tuition fee of S $32800 per year. At the same time, it has a particular advantage in providing English-Chinese and English-French bilingual courses. In addition, CIS is well known in ASEAN, and its trademarks have been registered in India, the Philippines, Myanmar, Thailand and Vietnam, giving the company more room for expansion.
Synergistic effect with Maple Leaf Education
We expect CIS's IB curriculum and Maple Leaf Education's own world school curriculum to complement each other, and Maple Leaf Education is expected to provide high-quality Chinese teachers for CIS's bilingual curriculum. CIS has an enrollment network in China, and with Maple Leaf Education's reputation in China, the two companies are expected to benefit from joint marketing. As China's education industry is highly influenced by national policies, the overseas expansion of Maple Leaf Education should help to minimize the impact of China's policy changes.
There may also be synergy between CIS and the Hillside campus of Maple Leaf Education in Singapore and Imperial Palace in Malaysia. With the acquisition of CIS, Maple Leaf Education's share of overseas revenue will rise to 30 per cent. Maple Leaf Education will help CIS deleverage and improve profitability. After deducting the additional financial expenses associated with the acquisition, we expect that the CIS consolidation will increase Maple Leaf Education's revenue by 6% and 10% in fiscal years 21 and 22.
We raised our net profit forecast for fiscal year 21-22 by 9.9% and 15.9% respectively to reflect the impact and synergy of CIS consolidation. The rating was upgraded from "hold" to "overweight" because we believe that the acquisition of CIS is beneficial to the long-term growth of Maple Leaf Education. Positive drivers include: 1) increased utilization and the increase in the number of students that can be accommodated; 2) the company uses a light asset model to promote future expansion. The risks include: 1) the impact of the COVID-19 epidemic exceeds expectations; 2) CIS fails to bring synergy as expected; 3) it is negatively affected by government policies.