17 May 2012
Masterskill Education outlook negative due to shrinking student base from the impact of negative regulatory changes, lower loan allocation by PTPTN and higher minimum entry requirements for their nursing programme - OSK Research
(MEGB closing stock price yesterday (16.5.2012) was RM 1.01)
In Masterskill Education Group Bhd’s disappointing financial year ended Dec 31, 2011 (FY11) results, earnings dived 62.7% year-on-year. With its first-quarter ended March 31 results due to be released on May 28, we carried out our on-the-ground check on its operations.
The company’s numbers are likely to be significantly weaker in the first half owing to the absence of a major enrollment during this period. We expect the group to report core losses of between RM3mil and RM5mil for the first quarter and break even at best in the next.
As the next major enrollment would only be in July and Sept, its share price is likely to retrace further in tandem with its dwindling earnings.
Therefore, we are maintaining our cautious stance given a potential earnings letdown in FY12 as its student base shrinks and its share price softens further on weakening fundamentals. With the company yet to turn around anytime soon, we maintain our “sell,” at a revised target price of RM0.81, based on 0.7 times FY12 price-over-net-tangible asset per share (P/NTA)
Its student base shrank 22.7% from 18,000 in FY10 to 14,000 in FY11 due to two negative regulations relating to its diploma in nursing programme during the year. These were a reduction in the National Higher Education Fund Corp’s loan allocation from RM60,000 previously to RM45,000, and the increase in minimum entry requirements from three Sijil Pelajaran Malaysia credits to five credits.
As a result, the company’s FY11 earnings plunged 62.7% year-on-year to a record low of RM38.1mil since listing in mid-2010.
We are revisiting our model to lower our core assumptions as well as update the FY11 numbers retrospectively with the release of the company’s 2011 Annual Report. We are now modelling for zero growth in its student base for FY12 and a sub-par 5% growth for FY13.
We are also slashing our core earnings forecasts by 90.9% for FY12 and 89.6% for FY13 to RM4.5mil and RM5.4mil respectively. While there is speculation that the company may pay a bumper dividend, we believe that it is unlikely at the moment, until management revives its core operations.
The company’s earnings have been on a downtrend since its listing in mid-2010. In terms of its valuation, Masterskill’s historical P/NTA ranges from 0.87 times to 3.64 times, and in view of the likelihood of it posting a record-low FY12, we are attaching a 20% discount to its lowest historical valuation.
As there is an absence of re-rating catalysts in the near term and the potential downside, we are maintaining our “sell” call, at a revised target price of RM0.81, instead of RM0.84 previously. As recent news of the potential entry of Ekuinas may not suffice in propping up the share price at current levels, we advise investors to take profit.