STI 9M profit: P1.6-B (up 45%)

STI Education Systems [STI 1.34 unch; 61% avgVol] [link] hyped its 9-month results yesterday, revealing that it made P1.62 billion in net income over the three-quarter period, which was up 45% y/y. STI said the higher profit was from higher enrollment due to “strong demand for quality education.” 9M revenues were P4.14 billion (up 23%), enrollment was 138,060 (up 15%), and EBITDA was P2.34 billion (up 32%).

MB bottom-line: STI is the kind of company that an investor can “catch” at the right time, because they’re very deliberate about what they do and how they do it. That makes predicting the impact of changes over time somewhat easier, as you have a longer list of things that you can rely on when you make your predictions. It doesn’t play a part in any family shell game shenanigans, like we saw with Chelsea Logistics [C 1.11 unch] under Dennis Uy when it suddenly began holding significant portions of a speculative telco investment. It doesn’t bloat itself with debt or try to make media waves with breathtaking capex pledges. STI, to me, is a proxy for the Philippines’ “demographic dividend.” Our average age is in the mid-20s, and we aren’t expected to hit our working-age peak until sometime around 2050, so that means there will be a baseline of at least a million plus new students and upskillers every year for the next 20-25 years. The biggest red flag is STI’s connection with BPO, which until very recently, has been something of unquestioned value. We’ve all watched as AI has gone from “haha that’s hilarious, it’s the lyrics to Shake It Off but as read by Jar Jar Binks!” to “Microsoft is laying off thousands because it’s replacing low-tier skilled workers”. AI’s insanely rapid evolution has nearly eliminated our English-speaking language edge, which we leveraged to grow BPO, and its continued growth in capacity and flexibility has it eating value higher and higher up the chain. That’s the thing that keeps me up at night when I think about STI as a long-term hold. 

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