HELP International Corp. - A full-fledged education player by CY14

HELP International Corporation (“HELP”) is primary engaged in the provision of education and training, which include  tertiary, vocational and pre-university programs in the country. The group is targeting to become a full-fledged private education provider by 2014 with the completion of its international school (by Sep-13) to be followed by its new Subang 2 campus completion in end-2014. This could result in a margin expansion for the group in the future due to the potential higher GP margin of c.30% for this segment as compared to its current university segment of c.20%. Moving forward, we expect HELP to continue to record a healthier growth, underpinned by its rising student base and increasing home-grown programmers, to record net profits of RM18.9m and RM21.8m respectively for FY13 and FY14. However, following  its hefty YTD total return of 27.5% as compared to 9.3% in the FBMKLCI, we believe that the group’s near-term catalysts have been very much priced in already. Nevertheless, should the group opt for the sale and leaseback financing option for its new Subang 2 project, which would imply a potential special reward to shareholders in our view, this may provide a fresh rerating catalyst for the  stock. We are initiating coverage on HELP with a MARKET PERFORM rating and a TP of RM2.04, based on a targeted FY13E PER of 15.9x (its 4-year average PER). 

Heading towards its target of becoming a full-fledged private education system provider by CY14. HELP is targeting to become a fullfledged private education provider (ranging from pre-school, primary and secondary to university services) in CY14 with the targeted completion of its international school in CY13 followed by the new Subang 2 campus a year later. The new campus will be able to accommodate an additional 15k students on top of its current student population of 11k, bringing the total student population to 26k under the blue-sky scenario. The group’s overall growth prospect will continue to be supported by the promising long-term growth prospects of Malaysia’s private higher-education industry.

One of the least to be affected by the PTPTN issue. According to management, only 6-7% of HELP’s students are under PTPTN loans as most of its students come from the middle-upper income group. Comparing HELP’s PTPTN students ratio (6%-7%) to the other listed education stocks such as Masterskill (~95%) and SEGi (~20%), HELP hence is one of the players least affected by the changes in the recent PTPTN policy.

Sales and leaseback option may lead to a potential special reward. The management is still deciding on ways to fund the RM180m capex to build the Subang 2 projects. While we understand that management is considering either a partial equity-debt funding or a sale and leaseback (asset disposal) financing, we think a sale and leaseback may be a good option for HELP given that it could unlock the value of the asset while at the same time avoids an EPS dilution in the future. Additionally, HELP could rewards its shareholders under this option by using the excess cash of RM120m-RM130m from the transaction, which would translate into RM0.84-RM0.92 per share.

Net cash position since FY07. In line with management’s prudent stewardship, the group has recorded a net cash position since its listing on Bursa Malaysia in 2007. As such, we believe that the group is likely to opt for the sale and leaseback financing option instead of raising its gearing position for the new Subang 2 campus project development. As of 3Q12, HELP’s net cash position stood at RM56.1m.

Source: Kenanga