Thursday 21 June 2012

HELP International - Numbers Likely to be in Line


Following a subpar 1QFY12 during which HELP’s earnings dived some 50% q-o-q and 40% y-o-y, we caught up with management for insight on the company’s existing operations and did some on-the-ground checks to determine its near term outlook. All in, we are maintaining our cautious stance given a potential cash call, which we understand would be finalized this month or so. Maintain NEUTRAL, with our FV now revised to RM1.93, based on 10x FY13 earnings, plus our forecast FY13 net cash per share of RM0.45.
Decent 2QFY12 likely. With about 11.5k students on board now, of which 2k are registered under its overseas franchises, we expect HELP’s 2QFY12 core earnings - due to be released on 26 June - to be in line with our expectation of RM7m-RM8m. We are maintaining our FY12 and FY13 numbers for now, with targeted students of 13k and 14k respectively. We also take the opportunity to introduce our FY14 forecasts. We expect the company to chalk up core earnings of RM24.7m on an enrolment of 15k students in FY14.
Firming up financing for new campus. Management said it is in the midst of finalizing the financing for its proposed RM150m Subang 2 campus in Sungai Buloh. Some of the options being considered are debt raising, equity issuances, as well as potential leasing arrangements. In view of the magnitude of the capex required vis-à-vis HELP’s current market cap of <RM300m, we do not discount the possibility of a cash call in the form of rights issue to offer minority shareholders an opportunity to increase their respective holdings in the company. We expect an announcement on this the latest by Aug.
Stepping into international school business. We understand that out of the RM150m capex proposed, RM20m-RM25m will be allocated for the setting up of an international school with a target capacity of 2.5k-3k students. Operations are expected to commence by Sept 2013 with a target first intake of 500-600 students at an annual tuition fee of RM30k-RM40k each. Although contribution from the international school is likely to remain insignificant until 2015, we see huge underlying potential in this new venture due to accelerating demand for quality private education in tandem with the growth in Malaysia’s average household income.
NEUTRAL. We expect no major surprises in the upcoming 2QFY12 results and hence maintain our NEUTRAL stance on HELP. While we continue to like the company’s solid management team and clean books, we remain cautious on the potential cash call, which we expect to be announced as soon as mid-July. Our FV now stands at RM1.93, as we roll forward our valuation to FY13, based on a revised 10x 1-year forward PER (from 9x previously due to better clarity on the financing of its RM150m campus), plus our forecast FY13 net cash per share of RM0.45.\

Source: OSK

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