Tuesday 6 September 2011

MEGB: A Bad Surprise

When you invest in a company which has the largest market share or leader of something, you may feel that you are making a right decision. But look at Masterskill.

Masterskill is the largest operator of nursing courses in Malaysia. It is listed in Bursa in May 2010 with an IPO price of RM3.50. However, its share price has since drops to RM1.18 now (66% down), after the announcement of the disappointing 2011Q2 financial results. Don't forget that Masterskill as a small cap, has an EPS of 25sen, ROE of 25%, Net profit of over RM100mil and dividend of 14.9sen or yield of around 8% in 2010.

RM mil 2010

Rev Profit Rev Profit
Q1 77 27 74 23
Q2 77 22 66 12
Q3 81 26

Q4 81 27

For 2011Q2, the revenue falls 11% QoQ and 14% YoY, while the net profit falls 48% QoQ and YoY. This set of results caught many by surprise and as a result, the target price has been cut, cut, and cut. 

Is Masterskill still worth investing in? Is it the start of the decline that takes years to recover or no chance to recover? Is it a temporary dip that provide a chance to buy at low?

Before this, negative news such as reduction in stake by foreign funds, rumours about PTPTN loan and CEO's health concern have significantly dragged the share price down to below RM2.

Lets see what are the reasons for this current poor results. From the management briefing, the reasons are:
  • Low student intake (3200 in 1H10 to 1800 in 1H11)
    • Delay in announcement of SPM (pre-U) exam results
    • PTPTN loan cut from RM60k to RM45k
      • 95% of Masterskill students depend on PTPTN loan
      • Average course fee is RM52k
    • Raised requirement for nursing diploma (from 3 credits to 5 credits)
    • New schedule of student intake of public universities delayed from previously June to September
      •  Students delay their decision to join private college/university
    • Delay in approval of nursing diploma at Kuching campus
  • Higher operating cost
    • To improve lecturer/student ratio
    • Perhaps the new MBBS (medical) degree
  • Higher depreciation
    • Greater expansion plan

Will all the factors above cause permanent damage to Masterskill? Or are they only temporary due to some "cultural shock" caused by the change in various policies that result in lower student intake?

     Future Bangi flagship campus

Lets look at other listed educational stocks in Bursa: Segi and Help.

FY2010 results
RM mil Rev Profit
MEGB 316 102
HELP 105 19
SEGI 218 43

From this FY2010 results of Masterskill, Segi and Help, we can see that Masterskill has the larger revenue and profit by a considerable margin, even though it only operates in health-related programmes such as Nursing and other allied health courses. The management has since included medical degree in mid-2011 and has the plan to diversify its courses especially into business-related programmes. If it is successful, surely it will have positive impact on masterskill.

FYI, both Segi and Help have a variety of programmes esp for Segi which offers Education, Business, Law, Accounting, Economics, Engineering, Computing, IT, Arts, Communication, Tourism, Language, Medical, Dentistry, Pharmacy, Nursing, Optometry etc.

A bit of positive/negative notes on Masterskill
  • Work with Australia's University of Newcastle to introduce business programme
  • Plan to get a college building in Petaling Jaya for its business, law, media & hospitality programmes in Apr12
  • Plan to expand to Indonesia/Indian subcontinent (but still no clear plan)
  • CEO collapsed and undergone life-threatening brain aneurysm surgery in Nov 2010 and has been out of management in the subsequent 4 months.
  • Delay in completion of Bangi flagship campus (from end 2012 to end 2013)
  • Started medical degree MBBS in June 2011 at Seri Alam campus
  • Increased quota for its medical degree from 50 to 100 students
  • Internal loan to help students after loan cut in PTPTN
  • Masterskill now only operates in health-related education programmes and it has a large room for expansion
         CEO with a big scar on his head

    The subsequent 2011Q3 result is expected to be like or even worse than Q2, before improvement expected in Q4 after the new student intake.

    If the management of Masterskill is really good, then I can see its large potential of growth by expanding its business into non-health related programmes and overseas (which are already inside their plan). Even though education business is said to be recession proof, there are definitely lots of competition in the country at the moment.

    Masterskill's major direct competitor should be Mahsa (not publicly-listed), which also offers health-related programmes which include not only nursing & medical, but also pharmacy & dentistry. Anyone knows how is Mahsa doing?

    OSK 1.91
    CIMB 1.71
    RHB 2.10
      MEGB latest target price

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