MindChamps PreSchool Limited’s IPO: How it Makes Money

MindChamps PreSchool Limited filed its initial public offering (IPO) prospectus last Friday.

At the time of the filing, MindChamps PreSchool had a network of 54 centres. 10 centres are owned and operated by the company itself, while another 44 are owned and operated by franchisees. There is much more we can learn about the company as we go through its prospectus.

As Foolish investors, we can start with the most basic question: how does the company make money?

Show me the money

MindChamps organizes its business into two major segments: Education and Franchise. The Education segment covers revenue related to its company-owned-company-operated (COCO) child care centres. The franchise segment houses revenue from its franchisee-owned-franchisee-operated (FOFO) centres.

A summary of the revenue split between the two segments is shown below:

Source: MindChamps PreSchool’s IPO prospectus

For the Education segment, MindChamps PreSchool makes its dough through the school fees it charges. According to its IPO prospectus, the amount of money the company draws in from the segment is dependent on the total number of enrolled students in its centres.

It’s worth noting that MindChamps PreSchool’s revenue can be seasonal – student enrolment is at the lowest at the start of the year. Furthermore, Singapore’s EDCA (Early Childhood Development Agency) imposes enrolment limits on the number of students.

The table below shows the company’s historical number of COCO centres, average number of students, and average school fee per student per month.

Source: MindChamps PreSchool’s IPO prospectus

Over at the franchise segment, Mindchamps PreSchool derives revenue from franchise income, commission income from sales-related services, and a one-off royalty fee. The royalty fee is between S$70,000 and S$150,000 and is collected after the franchise agreement is signed. From there, MindChamps PreSchool collects between 9% (for MindChamps PreSchool centres) and 15% (for MindChamps Reading & Writing Centres) of its franchisees’ revenues. A typical franchise agreement lasts six years.

In general, there are two types of franchise agreements: unit franchise agreements, and master franchise agreements. The former covers one unit per license. The latter is a broader contract for multiple units of franchise licenses, and is targeted for specific countries, territorie,s or regions.

If you would like to learn more about the MindChamps PreSchool IPO, head here. Stay tuned for more articles on the IPO this week.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.