2012 a mixed year. 2012 was a year of mixed fortunes for the education counters under our coverage, as HELP (NEUTRAL; FV RM1.93), SEGi (NEUTRAL; FV RM2.09), and Masterskill all failed to make the earnings grade due to slowing enrolment amid growing competition. The year’s sole bright spot was Prestariang (BUY; FV RM2.15), which saw its share price surging over 60% YTD as management announced that the company is venturing into tertiary education via the setting up of a niche computing university in Cyberjaya.
Tough tussle in tertiary space. At the macro level, we noticed that there were a number of status upgrades among existing tertiary education providers over the last year. Established players like HELP and SEGi have been upgraded to university status while their smaller peers have likewise been upgraded to MAHSA University, Nilai University, Kuala Lumpur Infrastructure University and Binary University. We attribute the upgrades to escalating competition in the industry as most education players gear up to attract more students by improving their respective branding. We foresee more advertising and marketing activities in 2013, with a potential price war on the horizon. This we believe could eat into overall margins and take a toll on sectorial earnings.
Funding woes gradually being addressed. On the positive side, the Government reiterated during the year that the National Higher Education Loan Fund Corporation (PTPTN), estimated to have an outstanding balance of over RM45bn, would not be abolished. To encourage timely repayments, discounts were offered to existing borrowers, as a result of which the collection rate improved substantially from 47% in 2011 to 85% this year. To ensure sustainability of the system, we foresee more incentives being offered going forward as the Government gets increasingly stringent in narrowing the country’s existing budget deficit.
Opportunities in private primary and secondary space. Following the release of the National Education Blueprint, in which the Government identified the shortcomings of Malaysia’s existing primary and secondary education systems, we expect private education players in Malaysia playing a more significant role to address some of these weaknesses. For instance, there are currently 68 international schools in Malaysia with 27k students in total, of which 43% are locals. This is a staggering >100% increase over the last five years, in tandem with the increasing number of mid- to upper-income households in the country. Going forward, we see plenty of untapped potential in the international schools universe due to the underserved demand from parents clamouring for better quality education and willing to pay a premium for it. With the Government championing expatriate-friendly regulations such as the Malaysia My Second Home programme and setting a target of 75k students in Malaysia’s international schools by 2020, we see these moves further stimulating demand for quality private education from expatriates. Among the companies under our coverage, HELP and SEGi have proposed to set up their own international schools, which are expected to commence classes in 4Q13 and mid-2015 respectively.
NEUTRAL. We are maintaining our NEUTRAL stance on the sector as we believe the heightening competition could potentially hurt profits in tertiary education in the near term. This is already evident in the disappointing YTD earnings reported by HELP and SEGi, as well as Masterskill (on which we ceased coverage earlier this year). While we see potential in private primary and secondary education, none of the stocks under our coverage currently have a presence in this segment. Prestariang (BUY; FV RM2.15) remains as our top sector buy as we expect a slew of positive news relating to its proposed university specializing in Malaysia’s first-of-its-kind computer engineering courses.
Tough tussle in tertiary space. At the macro level, we noticed that there were a number of status upgrades among existing tertiary education providers over the last year. Established players like HELP and SEGi have been upgraded to university status while their smaller peers have likewise been upgraded to MAHSA University, Nilai University, Kuala Lumpur Infrastructure University and Binary University. We attribute the upgrades to escalating competition in the industry as most education players gear up to attract more students by improving their respective branding. We foresee more advertising and marketing activities in 2013, with a potential price war on the horizon. This we believe could eat into overall margins and take a toll on sectorial earnings.
Funding woes gradually being addressed. On the positive side, the Government reiterated during the year that the National Higher Education Loan Fund Corporation (PTPTN), estimated to have an outstanding balance of over RM45bn, would not be abolished. To encourage timely repayments, discounts were offered to existing borrowers, as a result of which the collection rate improved substantially from 47% in 2011 to 85% this year. To ensure sustainability of the system, we foresee more incentives being offered going forward as the Government gets increasingly stringent in narrowing the country’s existing budget deficit.
Opportunities in private primary and secondary space. Following the release of the National Education Blueprint, in which the Government identified the shortcomings of Malaysia’s existing primary and secondary education systems, we expect private education players in Malaysia playing a more significant role to address some of these weaknesses. For instance, there are currently 68 international schools in Malaysia with 27k students in total, of which 43% are locals. This is a staggering >100% increase over the last five years, in tandem with the increasing number of mid- to upper-income households in the country. Going forward, we see plenty of untapped potential in the international schools universe due to the underserved demand from parents clamouring for better quality education and willing to pay a premium for it. With the Government championing expatriate-friendly regulations such as the Malaysia My Second Home programme and setting a target of 75k students in Malaysia’s international schools by 2020, we see these moves further stimulating demand for quality private education from expatriates. Among the companies under our coverage, HELP and SEGi have proposed to set up their own international schools, which are expected to commence classes in 4Q13 and mid-2015 respectively.
NEUTRAL. We are maintaining our NEUTRAL stance on the sector as we believe the heightening competition could potentially hurt profits in tertiary education in the near term. This is already evident in the disappointing YTD earnings reported by HELP and SEGi, as well as Masterskill (on which we ceased coverage earlier this year). While we see potential in private primary and secondary education, none of the stocks under our coverage currently have a presence in this segment. Prestariang (BUY; FV RM2.15) remains as our top sector buy as we expect a slew of positive news relating to its proposed university specializing in Malaysia’s first-of-its-kind computer engineering courses.
Source: OSK
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