Broker's take: CGS-CIMB expects drop in Overseas Education students, downgrades to 'hold'

CGS-CIMB has downgraded Overseas Education Limited to "hold" from "add", premised on poor earnings visibility, and lowered its target price to 26 Singapore cents from 42.3 cents.

Analysts Ngoh Yi Sin and Caleb Pang are projecting a weaker second half of 2020 for the company, which runs international school Overseas Family School.

With 200 students graduating in academic year 2019/2020 and the likely shrinking expatriate community in Singapore, the research team expects Overseas Education's student enrolment to decline to 2,400 in academic year 2020/2021 and to 2,300 in academic year 2021/2022.

"We expect the increased restrictions and the soft labour market to place downward pressure on the number of Employment Pass (EP) holders, thereby increasing the difficulty for expats and their families to relocate to Singapore, which could lead to reduced demand for international schools," the analysts said in a research note on Tuesday.

The Singapore government recently imposed stricter requirements for foreign hiring as part of concerted efforts to protect jobs for locals by raising minimum salary levels for EP holders.

The analysts have trimmed their FY2020-22 forecast earnings per share by between 2.3 per cent and 20.9 per cent. This is to reflect weaker student enrolment numbers and unchanged tuition fees, partially offset by lower personnel costs.

Shares of mainboard-listed Overseas Education last traded at 28 Singapore cents on Tuesday, up 0.5 cent or 1.8 per cent.