Wong Fong Industries, the engineering firm that has diversified into education and training, has done the easy part of acquiring private higher education institute Hotel and Tourism Management Institute (HTMi), said to rank among the top 20 hotel schools in the world.
However, tourism and travel has been hit hard by the Covid-19 pandemic and has affected HTMi’s intake of students. At present, because of the pandemic, HTMi only has 20 students. It needs around 100 to 120 to break even. Although its full capacity is about 600 in a given year, travel restrictions may limit student intake.
While the pandemic lasts, HTMi is expected to have a burn rate of $100,000 a month. This comprises rental, salaries and utilities. The fees per student — depending on the courses and whether they are local or foreign — range between $6,000 to $12,000 a year.
To recap, Wong Fong is acquiring HTMi through its 60%-owned subsidiary, Ascendo International Holdings. The acquisition cost to Ascendo is $150,000. According to the transaction announcement, HTMi’s unaudited PBT for the fiscal year ended March 31 was $3.4 million, which is higher than Wong Fong’s PBT of $2.84 million in FY2019.
What is the catch? HTMi has related party loans $4.67 million which have been waived for the purpose of this transaction, otherwise Ascendo would not have proceeded with it. If the related party loans had not been waived, the net tangible liabilities and net liability value of HTMi would have been approximately $4.69 million and $4.8 million respectively, and instead of a net profit, HTMi’s net loss would have been around $1.27 million. But since HTMi’s related party loans are waived, its net tangible liabilities and net liability value are just $17,000 and $136,000 respectively.
HTMi is a private higher education institute for the hospitality and tourism industry. It is registered with the Council of Private Education and has been granted the EduTrust Award under the EduTrust Certification Scheme.
In SIngapore, HTMi operates a commercial school for hotel and tourism management education and offers higher education managerial programmes and courses under the HTMi brand, with students of different na-tionalities. The programmes and curriculums are adopted from HTMi Switzerland. In fact, the vendor is the founder and managing director of HTMi Switzerland, which operates a commercial school offering higher education programmes and courses for hotel and tour-ism management education.
Acquisition is NAV-dilutive, EPS-accretive
Based on Wong Fong’s pro forma figures for FY2019, the acquisition is marginally dilutive with net asset value per share falling to 19.3 cents from 19.31 cents, but earnings per share accretive, with EPS rising to 2.41 cents from 0.96 cents.
The acquisition announcement statement on May 26 says that the acquisition is well placed in the strategic roadmap for the group’s training and education business. HTMi is the group’s first venture into the private education sector and offers key international partnership opportunities with institutes of high-er education, universities and colleges, the circular adds.
Jack Wong, CFO of Wong Fong, says the rationale for the acquisition is that HTMi will complement Wong Fong’s Continuing Education and Training course offerings by Wong Fong’s training entities which should enable it to offer more specialised courses and diplomas.
HTMi will also enable Wong Fong Ind to diversify its training and talent management businesses, and further expand its scope of training. In addition to industrial and hospitality training, Wong Fong would be able to provide tertiary training in the hotel and tourism management segment.
According to Wong, Wong Fong always had two main businesses: Training and engineering. While engineering provides the bulk of the revenue, margins a lot higher in the training business.
“On the training side, we have several business segments, industrial training under Wong Fong Academy, and the hospitality side. Now we’re going into private education with HTMi and it dovetails with Wong Fong,” says Wong.
Training is also not new to Wong Fong because it is part of the service provided, adds Wong. The company distributes mobility systems including cranes, trailers, containerised and shelter systems and load handling systems. “The training business is growing and rep-resents more than half of group profit although it contributes 10% to 15% of revenue,” Wong adds. In FY2019 and FY2018, training reve-nue was about 25% and 18% group revenue respectively.
Uphill challenge
According to Vinoth Prakas, director of HTMi, 95% of HTMi’s students were foreigners, before the Covid-19 outbreak. “Before Covid, we had foreign students. Now there are no foreign students coming in. So we’re doing a lot of adjustment and we need to do some research as well,” he says.
“HTMi is ranked 17th among all the hotel schools in the world,” Prakas says. He acknowledges however, that the key to attracting more students is the resumption of travel which Singapore is doing only very gradually.
Meanwhile, Prakas has his work cut out for him because of tough local competition. Local students’ fees are usually heavily subsidised at ITEs and polytechnics where they can study for hotel, tourism and catering courses. In addition, Shatec which stands for Singapore Hotel and Tourism Education Centre and established in 1983, claims it is the premier hospitality school in Asia.
While HTMi has three courses according to its website — foundation, diploma and advanced diploma in hotel and tourism management — Shatec has a slew of courses, from foundation to advanced.
“We have students coming in. HTMi provides a foundation course which will allow students to enrol in university courses and our foundation programme is certified by EduTrust,” Prakas says.
In relation to Covid and the economic havoc it has wrought, it is unclear whether the hospitality sector can recover to pre-Covid levels. Reuters, citing daily Le Figaro, reported on Aug 20 that French hotelier Accor SA considered entering into a potential merger with UK’s InterContinental Hotels Group as the hospitality sector struggles during the coronavirus pandemic. Accor has not formally approached InterContinental Hotels, the report said. Although the combination of the two hotel giants would create the world’s biggest hotel group, it would also likely lead to cost synergies implying a leaner workforce.
Wong acknowledges that the HTMi acquisition provides challenges. He remains optimistic though. “Vinoth is a key member of HTMi. He was a student and graduated 10 years ago. We support him via the group’s resources,” Wong says.
