STI’s Expansion Bet Meets a Revenue Reality Check

The education group poured ₱1.7 billion into new campuses, but enrollment declined, and rising costs pushed annual profit lower.

STI Education Systems Holdings, Inc. is building for growth. For now, it is still waiting for the students to arrive.

The education company spent roughly ₱1.7 billion on property and campus expansion in the fiscal year ended June 30, 2026, up 76% from the previous year. Yet revenue remained virtually unchanged, enrollment declined, and higher operating costs pulled net income down 9%.

The results make FY2026 look less like a growth year and more like an investment year. STI is committing capital to new and expanded campuses in Meycauayan, Tanauan and Alabang, betting that additional capacity will attract thousands of students over the coming school years. The bigger question is whether enrollment will grow quickly enough to fill those buildings and restore the operating leverage that once supported wider margins.

Revenue slipped 0.2% to ₱5.55 billion from ₱5.56 billion. Net income fell to ₱2.01 billion from ₱2.22 billion, while earnings per share declined to ₱0.20 from ₱0.22.

The modest revenue decline might appear manageable. The expense movement was less reassuring.

Costs and expenses rose nearly 7% to ₱3.41 billion, reflecting higher depreciation, subscription expenses, and provisions for expected credit losses. Operating income fell almost 10% to ₱2.14 billion. The operating margin narrowed to 39% from 43%, while the net margin declined to 36% from 40%.

That is the arithmetic of negative operating leverage: revenue went nowhere while the cost of running and expanding the school network increased.

Fewer students, more revenue per student

The weak top line reflected lower enrollment. STI’s total student population declined about 4.5% to 132,941 from 139,155.

The decline was concentrated in programs under the Department of Education, where enrollment fell to 28,571 from 36,139. Enrollment in programs under the Commission on Higher Education proved more resilient, rising to 102,407 from 101,256.

That shift in student mix helped protect revenue. Based on consolidated revenue and reported enrollment, revenue per student increased roughly 4.4% to about ₱41,700. Higher tuition and a larger proportion of college students appear to have offset much of the drop in total enrollment.

But STI’s costs moved faster. Costs and expenses per student increased by an estimated 11.7%, far outpacing the increase in revenue per student.

The result was a business serving fewer students at a higher operating cost.

Building ahead of demand

STI’s expansion program is substantial. The group is developing new academic centers in Meycauayan, Tanauan, and Alabang, designed to accommodate thousands of additional students.

The strategy is straightforward. Larger, purpose-built campuses can improve the student experience, strengthen STI’s position in growing regional markets, and create room for future enrollment. Once campuses reach sufficient utilization, additional students can generate attractive incremental margins because many school costs are fixed.

But the timing creates risk.

New campuses bring depreciation, maintenance, technology, utilities, security, and staffing expenses before they necessarily reach efficient enrollment levels. If student intake builds slowly, those costs can weigh on earnings for several years.

STI already had capacity for about 159,569 students, compared with actual enrollment of 132,941. That suggests systemwide utilization of roughly 83% before the new projects fully add capacity.

The company is therefore expanding while parts of its existing network still have room to accommodate more students. That doesn’t make the investments inherently misguided, since demand varies substantially by location, but it raises the burden on management to demonstrate that the new campuses are being built in markets capable of supporting them.

The decisive measures will be opening enrollment, student retention, and the time each campus needs to reach break-even.

Cash flow provides breathing room

The expansion is pressuring free cash flow, but not STI’s immediate financial stability.

Operating cash flow remained strong at approximately ₱2.97 billion, only slightly below the previous year. After deducting about ₱1.70 billion in property and investment-property spending, simplified post-capex cash flow stood at roughly ₱1.26 billion.

That was down about 38% from the previous year, largely because capital spending rose sharply. Still, STI generated enough internal cash to finance its expansion, pay dividends and reduce borrowings.

Cash rose 11% to about ₱3.03 billion, while loans and bonds fell 27% to about ₱1.84 billion. As a result, STI ended the year with cash exceeding reported loans and bonds by roughly ₱1.18 billion.

That financial position gives management time. STI doesn’t need its new campuses to deliver immediate profits to protect the balance sheet. It can absorb a period of lower utilization while developing demand.

Investors, however, may be less patient if enrollment and revenue remain sluggish after the new campuses begin operating.

Dividend remains well protected

The dividend is the clearest source of comfort.

STI declared a dividend of ₱0.055 per share, equivalent to about ₱544.8 million, up from ₱0.045 per share the previous year. The increase came despite lower earnings.

Even so, the dividend represented only about 27% of net income. Earnings covered the distribution approximately 3.7 times, while operating cash flow covered it roughly 5.4 times.

More importantly for an expanding company, post-capex cash flow still covered the dividend about 2.3 times.

That means STI isn’t borrowing to sustain shareholder distributions. The company increased its dividend while reducing debt, completing campus projects and adding to its cash balance.

Unless enrollment and earnings deteriorate much further, the dividend appears secure.

The campuses now have to perform

STI’s FY2026 results don’t suggest a company in financial distress. Its margins remain high, cash generation is robust, and leverage is modest.

They do, however, reveal a widening gap between capital investment and operating growth.

The company spent heavily on expansion, but revenue remained flat. It increased revenue per student, but not enough to offset lower enrollment and higher costs. It generated nearly ₱3 billion in operating cash flow, but elevated capital spending reduced the cash available after investment.

That leaves STI in a transitional position. Its balance sheet can support the expansion, and its dividend can withstand the present earnings decline. The unresolved issue is whether additional campus capacity will generate enough enrollment to reverse margin pressure.

If the new schools attract students rapidly, today’s higher depreciation and operating costs could be absorbed across a larger revenue base. Earnings growth could resume as the campuses mature and capital spending normalizes.

If enrollment remains weak, STI could be left with more classrooms, higher fixed costs, and little additional revenue to offset them.

For FY2026, the company’s expansion remains visible in its assets and cash-flow statement, but not yet in its income statement. STI has built the capacity. It now needs to prove that demand will follow.

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Disclaimer: This is for informational purposes and is not investment advice. Figures come from company disclosures and exchange data; valuation ratios reflect the author’s calculations based on cited inputs.