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ChinaCast Education: Expanding the Campus

Regarding valuation, the Street consensus 2010 GAAP EPS for our company is 42 cents but if you back out the noncash charges, amortization of intangibles and stock-based compensation, our cash EPS is 55 cents, which makes the stock much cheaper. On an EV/EBITDA basis, we are currently trading at less than five times fiscal 2010 EV/EBITDA, vs. the PRC education average of 10 to 12 times EV/EBITDA. Thus, we believe our stock presents an investor with not only an excellent long-term growth story but a great value investment.

In addition, Deloitte Touche has been our auditor for the past 10 years. This is a key point in that probably less than 15% of all PRC small-cap companies listed in the U.S. have a Big Four auditor, and there have been some high-profile auditing fraud cases from PRC small-cap companies over the past year. Now I'm not saying that just because you don't have a Big Four auditor you are not a good company or that if you have a Big Four auditor there won't be any problems, but in most all cases of accounting fraud by PRC small-cap companies, none had a Big Four auditor. It typically costs a company over $1 million dollars in fees annually for a big four auditor, Sarbanes Oxley and IR communications, but it's the minimum you have to pay to be taken seriously by U.S. investors.

Another important issue to consider is we are a very professionally managed company and have an excellent track record of corporate governance and creating shareholder value. All our key executives and board members have worked for multinational companies, have brought companies public in Hong Kong, Singapore and the U.S. and communicate frequently and articulately with investors and analysts.

Why the $43 million raise in December 2009?

When we did the raise we had two strategic university acquisitions in mind and needed the incremental capital. If you look at the very profitable business and strong cash flow generated by the newly acquired university, the significant assets added to our balance sheet, the long-term investors added to our shareholder list and the increased liquidity to our stock, then we believe we've created good, long-term shareholder value.

With this acquisition, we have provided guidance of up to $47 million in EBITDA this year and will have north of $60 million in EBITDA next year. We are now in as strong a position as ever in the history of the company in terms of cash flow and assets and believe we can organically grow EPS 20% to 25% even without acquisitions. In addition, we've now crossed a major strategic inflection point in the company's history that due to our strong balance sheet and cash flow, we believe we can make at least one acquisition a year without ever having to come back to the market and thus accelerate EPS growth.
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