HELP (FV RM1.55 - NEUTRAL) 1QFY12 Results Review: Poor Score in 1Q

HELP’s  1QFY12 results were below  our expectations. Core earnings  came in at RM1.7m, at <10% of our full-year estimates due to higher personnel costs incurred on staff recruitment.  We  are  thus  revisiting  our model and tweaking our EPS forecasts lower by some 9.2% for FY12 and 4.1% for FY13. This brings our FV  to RM1.55, taking into account its  target net cash per share of RM0.46 by Oct 2012. Maintain NEUTRAL.

Not making the grade. HELP’s 1QFY12 revenue of RM26.9m was down by a marginal 5.6% q-o-q on seasonality but up by a decent 10.5% y-o-y on higher student enrolment. Gross profit, however, sank  more than  34%  both  y-o-y  and q-o-q  to RM2.3m due to higher personnel costs incurred in recruiting lecturers with doctorate degrees as part of the requirements for its upgrade to full university status. Correspondingly, both EBIT and PBT closed lower at RM3.5m and RM3.2m respectively.  All in, HELP’s 1QFY12 core earnings dwindled to RM1.7m (-53.0% q-o-q; -38.2% y-o-y), exacerbated by a marginal increase in effective tax rate.

Downgrading forecasts. Given the disappointing results, we revise upwards our opex assumptions for both FY12 and FY13, which translate into an earnings cut of some 9.2% for FY12 to RM17.3m, and 4.1% for FY13 to RM18.8m.  On the other hand, we  are lowering  our capex estimates from RM50m to RM20m  for  FY12 and from RM40m to RM30m for FY13 as we now expect a delay in completing its proposed flagship Subang 2 campus in Sungai Buloh. From our recent conversation with management, there were some changes in the proposed architecture, with piling works now expected to start next month.  The first  phase of the flagship campus, with an estimated capacity of 8k students, is expected to be completed by 2014. Subsequently, HELP’s net cash balance is expected to improve to more than RM60m over the next 2 years.

NEUTRAL. While we continue to like HELP’s clean books, experienced management and its solid reputation, we remain wary of the potential equity dilution due to funding for its proposed flagship Subang 2 campus, which we understand may involve an outlay of RM150m-RM200m. We are also cautious on  a  possible downside risk to earnings as management ramps up its headcount after obtaining university status. Hence, we maintain our NEUTRAL recommendation for now, with our FV now at RM1.55, based on an unchanged 9x FY12 PER, plus its target FY12 net cash per share of RM0.46.   

Source: OSK188