MEGB (FV RM0.81- SELL) 1QFY12 Results Review: Surprise Dividend to Boost Sentiment

Masterskill sank deeper into the red in 1QFY12 with a net loss of RM2.9m for the quarter.  The losses were within our expectations, as highlighted in our  15 May report, but below consensus’ annual net profit forecast of RM37.9m. To our surprise, however, it declared a first interim DPS of 14.6 sen. Nonetheless, our doubts on its operations remain since we expect the group to at best break even in 2QFY12 and return to the black only by 3QFY12 as the next major enrolment would only  be in  July  and September. Maintain SELL, at an unchanged FV of RM0.81, based on a revised 0.8x FY12 P/NTA.

Worst quarter ever since listing. Masterskill’s1QFY12 revenue came in at RM44.6m (-10.9% q-o-q, -40.1% y-o-y). With core losses of RM2.9m (+85.9% q-o-q; -112.9% y-o-y), it has sunk further into the red to mark its worst ever quarter since listing in 2010, no thanks to the subpar enrolment which we estimate to be at 13k for the quarter. To our surprise, it declared a bumper first interim DPS of 14.64 sen, amounting to a total payout of RM60.1m to distribute part of its unutilized IPO proceeds of RM77.0m back to its existing shareholders, following its plan to defer the construction of its previously proposed new campus. Despite the appealing yield which we believe would  garner investors’ interests in the near term, we are slightly negative on this development as this could indicate that management, which is currently led by its major shareholder Dato' Sri Santhara Kumar, lacks the commitment needed to turn around Masterskill’s deteriorating fundamentals and hence, putting off its proposed capacity expansion for good. Coupled with the burgeoning news flow on the major shareholder cashing out of the company, we choose to remain cautious until we hear more on the emergence of potential new major shareholders, which we believe could prove crucial in turning around its existing subpar performance.

Diversification of offerings in progress. We understand that the group is looking to bring back its student base to the 15k-16k level by year end. To achieve this, it needs to launch its own business school by early 3Q12 in one of its existing establishments. For a start, degree and diploma courses would be offered. We believe contribution  from this segment would likely remain insignificant this year. Note that the group has proposed to change its name from Masterskill Education Group to MEGB Metropolitan, in our view, to improve its branding and create a higher awareness among Malaysian parents.

SELL. Maintain SELL  since we continue to expect the group to at best break even in 2QFY12 and return to the black only by 3QFY12 as the next major enrolment is only in July and September. Nonetheless, we are now removing our 20% discount  on  its historical low P/NTA of 0.8x to reflect the  potential improvement in trading sentiment following the dividend windfall announcement. With that, our FV remains unchanged at RM0.81, or RM0.66, after the stock goes ex dividend on 8 June.

Source: OSK