Thanks for raising important questions. I am not expert but let me try to answer for the 2~4 questions from my analysis so far, Welcome corrections.
Low ROE-> Here we got to see the ROE is for the combined entity of the pre-schools and K-12. The K-12 is asset heavy and it is what denting the ROE. In the earlier calculations, the K-12 assets which constitute 43% is delivering only 0.04X Asset turnover, whereas the pre-schools business is around.45X. The company’s plan is delivered and focus only on pre-schools. The company is in significant expansion phase now and that is also the reason for ordinary ROE’s. After a while I think it should stable and ratio’s should definitely improve. The better way is to check the per center profitability and breakeven period of the per center is less than 2 years. The centers earn anywhere b/w 30~120% return on their capital investment.
Consistent capital raising -> I think here the management is responsible for diverting funds to low asset turnover business such K-12. It invested heavily in the K-12 business fell short of the money and resorted to constantly raise money for expansion of the pre-schools. I think the investors are all just looking at the pre-school business and investing in them and pushing management to exit out of the K-12 assets which is holding the ROE. But again prudent management should have handled better and not ready to dilute equity at every instance.
Profitability -> Here again the blended numbers don’t look good. But with day care facilities the profitability should improve. Even currently the company margins are very high in the upward of 60% for Gross and 28% for net margin. MT Educare numbers are much lower. But with the constant capital requirement and investments, this company hardly many any free cash which has to change.
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