Raffles Education's valuation "very rich" says Kim Eng

Raffles Education extended losses after breaching psychological $1.00 support earlier this week. Kim Eng says valuations "very rich" given prospective P/Es of 34X FY08, 31X FY09 earnings - "pricey even with its past track record of earnings growth." Adds ability to extract synergies from recently-acquired Oriental University City (OUC) will take time, while funding for additional acquisitions may be tough as slowing market lowers investor appetite for fund-raising exercises.

Citigroup downgrades Raffles Education to Hold from Buy; cuts target price to $0.95 from $1.50. Broker says move follows unimpressive recent FY08 results, prospect of slowing organic growth as company encounters government restrictions setting up new colleges in China. Adds company facing cash constraints; "a continued aggressive M&A strategy to acquire Chinese colleges, high dividend payout, outstanding payment for OUC acquisition and delayed Hong Kong IPO of its China business create a funding gap, which we expect to be filled with new debt, resulting in higher interest expenses."

But says stock does not merit Sell rating as still positive on company''s aspirations to build private college network in long term, China regulatory overhang should at some point be resolved.