EDUCATION (Sector Update: OVERWEIGHT)

To determine the long-term sustainability of the sector, we take a look at the latest progress of some of the government initiatives under the ETP as well as the current situation for education providers in Malaysia. We also  make some brief comparisons with developed economies to gauge the underlying growth potential for the local education sector as Malaysia aspires to become a high-income nation by 2020. All in,  we maintain OVERWEIGHT on the sector with SEG International (BUY, FV: RM2.17) and Prestariang (BUY, FV: RM1.48) being our top buys. 

Education as one of the NKEAs. Recognizing the education sector as one of the key sectors that will drive the  growth of national income over the next 10 years and transform the nation into a developed economy by 2020, the Government has reiterated its focus on this sector. It has recognized 14 Entry Point Projects (EPPs) covering preschool to tertiary education to push up the overall literacy rate of Malaysians as well as to encourage a higher education take-up rate among citizens.

Rising  household  income the key catalyst. Should the  Economic Transformation Programme (ETP) succeed in pushing up Malaysia’s average income per capita, we see this as a big boost to the private education sector. This is evident in historical trends, whereby the number of local entrants into public and private tertiary varsities increase in tandem with  rising  domestic real GDP per capita.  We attribute this to the increased willingness to spend on education as a typical family’s household income increases and hence, we see plenty of room for improvement in the sector.

Tertiary take-up rate likely  to improve. There is plenty room for improvement in the tertiary take-up rate among  our secondary school leavers which currently stands at approximately 70%. As our real GDP per capita continues to expand, we expect tertiary take-up rate to improve in tandem with  the  increasing emphasis on quality tertiary education. We also expect private varsities to play a more important role due to a few factors, namely aggressive capacity expansion resulting in more competitive pricing, innovative programme packaging with options to do twinning programmes with reputable foreign university partners as well as a decline in the global ranking of Malaysia’s public institutions of higher learning, prompting parents to seek better alternatives.

PTPTN woes to be slowly resolved. PTPTN first came into existence in 1999 with the initial aim to provide tertiary education funding for private varsity students. Nonetheless, the  Government has since extended  it to  public universities  students and it  is  now  a source of funding for some 80%  of students in public varsities and 55%  in private institutions. According to sources, the outstanding  loans for PTPTN  amount to some RM43bn being borne by about 2m students, with an annual allocation  of some RM3bn for 200k students.  We expect  the Government to step up its loan collection efforts, having appointed the Inland Revenue Board (IRB) as the effective collection agent.

OVERWEIGHT. All in all, we maintain OVERWEIGHT on the sector, as we see local education providers gaining strength in 2012, driven by Government initiatives to spur the private education sector.  As the PTPTN works towards sorting out its collection woes, there appears to be a trend among local institutions to tie up with more reputable foreign institutions, thus further enhancing Malaysia’s appeal as an education hub.

Source: OSK188