Raffles' Designs for Asian Education

An aggressive acquisition strategy and a generous dividend policy have helped the company become a darling of the Singapore bourse

No one could accuse Raffles Education Chairman Chew Hua Seng of taking the traditional approach to curriculum. Indeed, in Asia where every parent dreams his child will graduate with a degree in engineering, business, law, or medicine, the idea of charging $11,000 a year for a kid to study design sounds pretty audacious. But Raffles, which Chew, 53, founded in 1990, was clearly ahead of the curve in catering to students who use the right side of the brain. It now boasts some 54,000 students a year in 28 different colleges located in some of the hottest economies in the region—including China, India, and Vietnam—that are keen on developing a distinct sense of Asian design.

That's helped Singapore-based Raffles Education Corp. (REC) snag the No. 2 slot on BusinessWeek's list of Asia's Hot Growth Companies for the second year in a row. For the fiscal year ended June 30, Raffles' net income soared 54%, to $33.9 million, on a 38% increase in revenues, to $55.9 million. Analysts expect profit growth to average 35% per year through 2010.

No wonder Raffles is one of the darlings of the Singapore bourse. Its stock is up tenfold in the past three years. What's more, the company pays out more than 90% of its profits in dividends, to give a current yield of 1.4%, a rarity in such a fast-growing company. "REC has found an attractive niche and can command pricing power in this segment," says a UBS (UBS) report.

Growth in China

Raffles' growth has been fueled not only by demographics but by the company's aggressive acquisition strategy. In June, it paid $32 million to buy Shanghai Zhongfa Education Investment, which runs vocational schools. The latest and by far most ambitious deal so far is the $274 million purchase of Oriental University City in October. Oriental University operates a self-contained, 3.31-million-square-meter campus in Langfang, a city in Hebei province. There, more than 54,000 students study in 19 colleges.

Raffles will own and manage Langfang Vocational Technical Institute and Langfang Health School, which have a total of 23,000 students, and provide support to the other 17 schools. Credit Suisse (CS) forecasts Oriental University, which makes Raffles the largest private foreign education provider in China, will help the group see a 72% jump in revenue and 78% rise in net profit for the year ending June, 2008.

Before the acquisition, China already accounted for 60% of Raffles' business, and the group now operates in eight other major Chinese cities, including Beijing and Shanghai, where the fledgling domestic fashion design business is creating a lot of demand for new graduates.

Accredited University

Raffles was founded 17 years ago by Chew, a former timber trader who heard the Singapore government was looking for investors to bankroll a private design school and chipped in $200,000. The school, a joint venture with Montreal's LaSalle College of Arts, became the cornerstone of Raffles.

Until recently, Raffles only offered two-year diplomas at its vocational colleges rather than full-fledged degrees, but since the accreditation of Raffles University in 2006 by Singapore, the group offers bachelor's degrees that are recognized by such top global design schools as Parsons School of Design in New York. Raffles University has 100 students so far in China, the only location it has opened. That will give a big boost to revenues as students will spend an extra year at Raffles, which is now offering programs in accounting, psychology, hospitality, and business.

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