STI bullish on outlook despite H1 profit loss

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LISTED STI Education Services Group, Inc. said it remains optimistic about its business outlook despite incurring a net loss for the first half of the year, as the company expects a surge of college entries in the next school opening which is expected to improve profitability.

“I think we’ll do better than last year,” STI President and Chief Executive Officer Monico Jacob told The Manila Times recently.

In the first half of the year, its parent STI Holdings booked a net loss of P446.2 million, dragged largely by affiliate company PhilPlans. The pre-need firm is owned 100 percent by Maestro Holdings, Inc., in which STI holds a 20 percent stake.

“The Insurance Commission has been wanting to strengthen actual real reserves of pre-need companies and so they said that to strengthen their actual reserve, ‘your discount interest rate should go down.’ In January this year, our discount interest rate [was]7.25 percent. The Insurance Commission said ‘Next year, 2018, you should bring down the discount interest rate to 6.5 percent and in 2019, you should bring down the discount interest rate to 6 percent,’ which means the hurdle rate for generating income for PhilPlans will be lower at 6 percent,” Jacob explained.

“However, we also decided that it might be a good idea to early implement the discount interest rate at 6 percent so that we can strengthen—we can show the strength of the actual real reserve,” he added.

In order for the company to be able to focus on its core business and to be spared from the impact of PhilPlan’s future performance, STI plans to sell its stake in Maestro to Hong Kong-based firm Carret Private Investments Ltd. (CPIL).

“Since we’re selling the 20 percent, we will no longer get affected by what happens to PhilPlans moving forward. So that’s part of the reason why we are selling the 20 percent. Part of the reason why we’re selling that 20 percent is so that we can concentrate on education,” he said.

According to Jacob, the transaction is still being worked out. “They’re doing due diligence. They have to do due diligence. We have to wait for the fair evaluation,” he said.

CPIL is the private wealth management arm of US-based investment advisor Carret Asset Management.
Meanwhile, STI is hoping to finish the construction of six campuses across the country in preparation for School Year 2018-2019.

“We hope to finish everything by 2018 because we are preparing for the school year 2018-2019 where first-year college students, where the first Grade 12 students will be graduating from senior high and will be going to college.”

STI owns 77 schools nationwide. Its network is comprised of 66 STI-branded colleges and 11 STI-branded education centers.

Of these, 32 college campuses are wholly-owned while the 34 college campuses are operated by franchisees, seven education centers are operated by franchisees, and four are wholly-owned education centers.

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