What Investors Should Know About Raffles Education Corp Ltd’s Diversification From China

There aren’t that many companies in Singapore’s stock market that provide education services. Raffles Education Corp Ltd (SGX: NR7) is one of them. The company had opened its first college in Singapore in 1990 and since then, it has expanded its business to 13 countries in all, with 30 colleges.

Raffles Education dividends its geographical segments into five, namely, Asean, North Asia, Australasia, South Asia, and Europe.

Raffles Education revenue sources chart
Source: Raffles Education 2015 annual report

You can see from the chart above that North Asia accounted for the lion’s share of Raffles Education’s revenue in 2015. The geographical region primarily consists of China and Mongolia. China is, in turn, the more important of the two. Raffles Education has five Chinese assets and a single Mongolian college.

The company had first entered the Chinese market in June 1994 when it established its first college in Shanghai. In the first half of the last decade, Raffles Education was ramping up its North Asian business – revenue from the geography spiked from S$34.5 million in FY2005 (fiscal year ended 30 June 2015) to S$141 million in FY2008.

But over time, the company’s enthusiasm over China seems to have cooled. North Asia’s revenue started declining from S$100.5 million in FY2011 to just S$68.7 million in FY2015. More important, Raffles Education had not invested in a single new campus in China in the past five years even though it had been busy opening new campuses in countries such as Malaysia, India, Indonesia and Sri Lanka.

So, the company has been diversifying its business away from North Asia (China, in particular). It’s hard to tell if it will be a successful strategy. The company’s revenue had declined from S$147 million in FY2011 to S$121 million in FY2016. Along the way, its profit had also fallen from S$42 million to S$16 million. Back in May this year, Raffles Education had set its sights on a new geographical market by proposing an acquisition of the Santa Fe University of Art and Design in the US.

Investors may want to keep an eye on the company’s developments in China given that it’s currently still the most important geography.

For more investing insights and to keep up to date on the latest financial and stock market news, you can sign up for a FREE subscription to The Motley Fool's weekly investing newsletter, Take Stock Singapore

Also, like us on Facebook to follow our latest hot articles. The Motley Fool's purpose is to help the world invest, better.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Ong Kai Kiat does not own shares in any companies mentioned.