Masterskill’s FY11
net profit of RM38.1m was way below consensus and our forecasts, only making up 82.0% of both full-year estimates. The company sank into
the red in 4QFY11 as enrolment weakened
and operating and depreciation expenses
went up. We cut our FY12 earnings estimate further by 2.8% as we turn increasingly
cautious on potentially weaker enrolment growth on stiff competition.
Maintain SELL.
Our FV is now RM0.84, based 7x FY12 PER. A big letdown. Masterskill’s FY11
revenue of RM250.2m was 20.8% lower y-o-y due to weaker student intake resulting from tightening of the minimum
entry requirements for diploma in nursing programs from 3 to 5 credits, as well
as the cap on loans to nursing students imposed by National Higher Education
Fund (PTPTN) from RM60k to RM45k. Correspondingly, EBIT sank by an even larger
63.8% y-o-y to RM41.7m as depreciation charges spiked up in tandem with its
capex rollout. The FY11 core earnings dived 62.0% to RM38.1m, helped only by a
lower effective tax rate during the year. The
4QFY11 numbers contracted sharply
q-o-q and y-o-y, with EBIT and
core earnings sinking into the red for the first time since the company’s
listing in mid-2010, with losses of RM2.9m and RM1.6m respectively. We
attribute the dismal performance to the anaemic student growth as PTPTN is
rumored to be cutting its loan allocation for nursing programmes in light of
the widely reported oversupply of nurses.
Dividend the sole
consolation. Despite the subpar quarterly performance, the company declared a second interim DPS of
1.4 sen, bringing its FY11 DPS to 5.6 sen. This implies a payout ratio of
60.2%, for a decent 5.4% yield. Dearth of catalysts. The poor results vindicate
our earlier concerns that Masterskill may be
cracking under the weight of rising competition and increasingly stringent PTPTN requirements.
Given the dearth of re-rating catalysts
for now, we continue to see a difficult 1HFY12 due to
subpar new sign-ups. Although its proposed collaboration with RMIT, Australia
has secured Ministry of Higher Education approval, we remain skeptical on the
near term accretion to earnings given the company’s poor execution record.
SELL. We are
revisiting our model and cutting our FY12 student growth further by 1.2% after
our last downgrade in Nov 2011. With our FY12 EPS now at 12.0 sen (-2.8% from 12.6
sen previously), we take this opportunity to introduce our FY13 forecasts. All
in, our bearish stance on the counter stays.
Hence, we maintain SELL, at a revised FV of RM0.84, based on a lower
FY12 PER of 7x (from 8x previously), considering that Masterskill’s worst ever quarterly performance since going
public will spook investors. We will take a re-look at our assumptions
should its venture into non-healthcare courses in partnership with RMIT bears
fruit.
Source: OSK188
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