Good education could change a life or even transform an entire country. An excellent example would be Singapore’s economic growth and development since 1965. The country’s success was strongly attributed to the technological literacy of the citizens, which was achieved largely through its educational system.
As Benjamin Franklin once said, “An investment in knowledge pays the best interest,” and Singapore parents are very well aware of this. Last year, a survey by HSBC showed that Singapore parents spend an average of $96,000 on their children’s education, ranking third globally. The fact that a quality pre-school education helps to build sound foundations coupled with Singapore parents’ strong commitment towards their children’s education, certainly bode well for pre-school operators.
With that, we take a look at Singapore’s first listed pre-school operator, which provides investors the opportunity to join in on the action.
MindChamps PreSchool (MindChamps), the largest operator and franchisor of premium range pre-school centres in Singapore, was the first preschool brand to list on the Singapore Exchange in November 2017.
MindChamps was initially launched as an educational research centre in 1998, on the belief that if we understand how we learn, we can find the best ways of targeting and releasing the potential in every child. Today, MindChamps is the only educational institute to collaborate with world-renowned neuroscientist Professor Emeritus Allan Snyder on the empirical research of the 3 Minds model of education, which is uniquely built into the MindChamps curriculum.
The group has since expanded to 48 early childhood centres and 12 reading and writing centres, spanning four countries. In Singapore, the group is estimate to hold a 38.5 percent market-share of the premium-range pre-school market.
While the group’s initial public offering attracted strong response with the public offering shares 83 times subscribed, it is notable that the offering of 30.4 million shares comprised mainly placement shares and only two million was available in the public tranche at $0.83 per share.
Having built up a decent cash pile of $39.4 million, mainly from IPO proceeds, the group is ready for global expansion.
Recently, the group announced the acquisition of four preschools in Sydney, Australia, for $13 million, to be funded by a combination of loan and equity. Upon completion, MindChamps will have eight early childcare centres and two reading and writing centres in Australia.
Having signed a joint venture agreement with China First Capital Group, MindChamps is set to enter the China market this year as well. The joint venture will see the establishment of a China Preschool Fund that will target to raise an initial tranche of US$200 million, mainly used to set up and acquire preschool centres under the MindChamps brand in China.
MindChamps move into the China market could not come at a better time as China’s implementation of the two-child policy in 2016 is expected to drive up demand for pre-school education sharply from 2019 before hitting the peak in 2021.
Growing Regional Network
The group will also see two more countries being added to its network, with the signing of two Master Franchises in Vietnam and Myanmar.
Evergrande Group in Vietnam has signed a Master Franchise Agreement, with plans to open 20 PreSchool and Reading centres in Vietnam.
Meanwhile, Passion Capital Venture has signed a Master Franchise Agreement and has plans to launch 10 PreSchool centres and five Reading centres, starting with Yangon. The first MindChamps PreSchool centre is targeted to open in Yangon in August 2018.
The rising middle class in developing countries in the region has resulted in an increased demand for better education. In addition, the group’s strong brand name in Singapore is likely to provide an edge in capturing the growing education demand in these markets.
Apart from the bright prospects of the group, it is also important to see how its valuation holds up against its competitors. However, due to the lack of close comparisons, we put MindChamps up against competitors in Australia, where the group also operates in.
(As at 27 April 2018)
At current valuations, MindChamps pales in comparison to its Australian rivals. Not only does MindChamps have the highest price-to-earnings ratio at almost triple that of G8 Education, MindChamps price-to-book value is also the highest at 3.5 times.
In terms of dividend yield, G8 Education takes the lead at nine percent, followed by Think Childcare at 5.3 percent. While MindChamps has not paid out any dividends for FY17, the group intends to pay out dividends of at least 40 percent of its net profit for FY18. Based on the group’s FY17 results, MindChamps would need to double its net profit in order for a 40 percent payout to translate into a dividend yield of approximately five percent.
While G8 Education’s valuations are the most attractive out of the three, it is notable that MindChamps does hold much potential through its aggressive expansion plans and barring any unforeseen circumstances, could come out ahead.