Period 1Q12
Actual vs. Expectations
1Q12 net loss of RM2.9m came in far below our expectations
as opposed to our and consensus full year net profit estimate of RM35.0m and
RM37.9m respectively.
Dividends Declared a first interim single-tier dividend
of 14.64 sen that will go ex on 8th Jun 2012.
Key Result Highlights
YoY, revenue plunged by 40% to RM44.1m, mainly due to the
lower new student enrolment coupled with the reduction in tuition fee. The
lower diploma tuition fee (from RM50k to RM40k) was mainly to cater to the
changes in the PTPTN loan scheme from a maximum RM60k to RM45k for its diploma students
since June 2011. Also, the increase in the minimum entry requirement for the
diploma nursing programmes from 3 credits to 5 credits since last year has also
increase the pressure in attracting new students. Note that diploma students account for around 95% of
the group’s total student population.
On top of that, the new MQA (Malaysian Qualification Agency)
has raised the teaching staff to students ratio to 1:20 (vs 1:30 previously)
thus leading to a higher staff cost during the quarter. With the lower sales
coupled with the higher staff as well as depreciation costs, MEGB turned in a
net loss of RM2.9m in 1Q12.
QoQ, revenue was lower by 11% while the NP was in the red
due to the reasons above. Margin-wise, MEGB recorded a lower EBITDA margin of
3.7% (vs 40.1% in 1Q11) as a result of a higher fee reduction (-20%) on diploma
programmes during the quarter.
Outlook Remains challenging due to unfavourable government
policies.
Forecasts Post-results, we have cut our FY12-FY13E net
profit by 83%-87% to RM6.3m-4.5m after lowering 1) FY12 and FY13 number of
students population to 10k and 9k (vs. 12k and 11.6k previously and 2) higher
fixed and operating costs.
Rating Ceased coverage
The stock is currently trading at very high FY12–FY13E PERs
of 66.8x–91.8x. In view of the unfavourable government policies coupled with
the higher fixed and operating costs, we do not expect MEGB to perform in the
foreseeable future. Hence, we are ceasing coverage on the stock for now until more
favourable developments for the company come up again. Our last TP was set at
RM0.94.
Source: Kenanga
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