MindChamps PreSchool Limited’s IPO: 4 Risk Factors Investors Need to Know

Shares of MindChamps PreSchool Limited (SGX: CNE) started trading on Friday.

MindChamps PreSchool has 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 when we go through its initial public offering (IPO) prospectus.

In our previous article, we learned how MindChamps PreSchool earns its revenue. Then, we gazed into the future and looked at its potential growth factors. Like any other IPO, companies are required to outline the risks that could impact their businesses.

After all, managing risk is part and parcel of investing.  As such, we will spend some time today to look at potential risks.

1. A limited talent pool

MindChamps PreSchool relies on its teachers to deliver the quality of education that its customers expect. However, the limited talent pool might hinder its ability to grow, it notes:

“There are a limited number of teachers with the necessary experience and proficiency to teach our courses.

We may not be able to hire and retain a sufficient number of qualified teachers and qualified school personnel to keep pace with our anticipated growth while maintaining consistent teaching quality and the overall quality of our education programmes across different preschool centres.”

As of 30 June 2017, MindChamps PreSchool has around 139 teachers in its company-owned-company-operated centres.

2. Regulatory limits

Beyond the educator talent pool, the growth at MindChamps PreSchool can also limited by regulation:

“The educational facilities of our preschool centres are limited in space and size. The total number of students that we are permitted to enrol for each of our COCO centres is subject to capacity limits imposed by the [Early Childhood Development Agency] ECDA (in Singapore) or under the relevant service approval (in Australia).”

As of 30 October 2017, MindChamps PreSchool noted that all its Singapore COCO centres have “nearly reached” its maximum permissible intake. That would mean that more centres will be needed if it wants to expand its student enrolment.

3. Reputational damage

MindChamps PreSchool noted that its reputation relies on a number of factors, including its ability to maintain the quality of education as it expands its footprint.

As a preschool operator has a large number of students under its care, any accidents or isolated incidents could lead to negative publicity or even litigation which could cause parents to lose confidence in its centres. The bad press could lead to lower student enrolments.

MindChamps PreSchool also said that its student base had been built through word-of-mouth referrals and press ads. Therefore, keeping a good name is vital.

4. Competition

Like any other business, MindChamps PreSchool is not free of competition.

On the prospectus, it highlighted initiatives that the Singapore government has in place to boost the number of preschool centres around the Lion City:

“For example, the Singapore Prime Minister had announced in his National Day Rally 2017 speech that the Singapore Government intends to increase its spending on the preschool sector, including measures to increase the number of preschool places in the next five years, with new preschool centres that will partner nearby kindergartens run by the Ministry of Education of Singapore.

The National Institute of Early Childhood Development of Singapore, a new centralised training institute, will also be set up to raise standards of preschool teachers.”

The preschool education space is also described as “evolving, fragmented and competitive”. The increase in options available to prospective students could lead to more competition in the future.

As such, MindChamps PreSchool expects competition to persist and intensify.

If you would like to learn more about MindChamps PreSchool, click here.

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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.