Cash for grades: Why OEL's massive 8.5 % tuition hike could be its last

Rivals look set to stop hikes.

It has been a great time for private schools in Singapore, with profits at record levels. OEL just reported a 5.5 % increase in profit for the quarter to $5.5 million, thanks largely to tuition hikes. But that game may be coming to an end with new competition from GEM's and Dulwich College, both of which are slated to open this year, likely to limit the ability of existing schools to raise rates like that again.

According to DBS, in view of new schools, it remains to be seen if fee hikes would moderate or if the relocation could disrupt continuation/renewal of enrollment from existing students. 

Here's more from DBS:

1Q14 profits formed 22% of FY14F. Despite higher expenses, OEL’s net profit grew 6% y-o-y to S$5.5m. Revenue grew a marginal 1% y-o-y to S$24.5m as OEL raised tuition fee by 8.5% across all grades for the new academic year. 

As a result, operating margins rose to 26% compared to 25% in 1Q13. Personnel expenses, which formed the bulk of costs, rose 7% y-o-y but was 2.3% lower q-o-q. Results were in line as 1Q14 met 22% of our FY14F. 

Steady performance until FY16, surprises unlikely. 

Apart from fee hike, near term growth is capped by limited capacity. OEL’s new campus in Pasir Ris is on budget and on schedule to complete for the academic year starting Aug 2015.