Will Raffles Education continue bleeding revenues?

While its latest earnings showed a 13% dip in revenues DBS sees signs of a flattening out.

Its Asia Pacific ventures are picking up the slack, posting 14% yoy rise in revenues. Meanwhile, its China segment is limping with a 28% decline in revenues after the company disposed its varying stakes on several schools like Shaanxi Electronic Information Institute.

Here's more from DBS:

2Q12 core earnings below. Net profit declined by 10% y-o-y to S$3.5m while revenues fell 13% to S$36.1m. Profit was boosted by non-operating income of S$9m arising from gain of sale of financial assets in the quarter. Excluding this, we estimate the group would have reported an EBIT loss S$0.5m. Hence, core earnings were below our expectations on lower revenues and higher operating expenses, particularly staff costs (+16% to S$16.4m) and other operating expenses (+19% to S$19.8m).

Efforts in Asia Pacific (ex China) paying off. Efforts to reduce reliance on China appear to be paying off. Asia Pac (ex-China) revenues increased 14% y-o-y to S$16.7m. This was, however, offset by a steeper 28% fall in revenues from China to $19.4m due to absence of contribution from Shaanxi Electronic Information Institute (100% stake) disposed and Zhongfa College (50% stake disposed), and lower enrollments in its other colleges. Compared to 1Q12 (S$35.9m), revenues were flat, suggesting sequential revenue decline may be flattening out.

Maintain Hold and S$0.48 TP. Whilst share price seems to have based out, we believe it is still too early to turn bullish on the counter prior to seeing sustained recovery on the group’s core earnings (excluding non-operating income) as costs continue to increase. We believe it will take a while before investors’ confidence returns to this counter. Maintain Hold and TP of S$0.48.