Monday, 19 December 2011

HELP expecting a better quarter

HELP International Corp Bhd (Dec 16, RM1.71)

Maintain market perform at RM1.71 with a fair value of RM1.80: HELP is due to release 4QFY11 ended October results on Thursday. We are expecting 4Q11 net profit of RM2 million, a sequential improvement given: (i) historical trends (HELP’s 4Q results tend to be stronger than 3Q); and (ii) 3Q11 earnings were affected by low student numbers and a material one-off relocation cost from Klang to Fraser Business Park (FBP), resulting in net profit declining to only RM245,000 for the period (2Q11:RM6.5 million, 3Q10:RM3.2 million). Earnings before interest, tax, depreciation and amortisation (Ebitda) margin for 4Q11 is likely to improve to around 20% to 25%, after declining to a dismal 4.6% in 3Q11. Full-year dividend is anticipated to be minimal, as HELP is conserving its cash for the construction of its Subang 2 campus.

Although HELP’s revenue has grown marginally year-on-year, this increase has been offset by the higher operating expenses incurred during the year, hence HELP’s FY11 net earnings will likely be lower than FY10 net earnings of RM19.1 million. However, we believe that net earnings will improve in FY12 as HELP will no longer be incurring exceptional costs in relation to the FBP branch.

The key earnings driver for HELP in FY12 will be the contribution from its FBP facility. The full contribution from the branch will be seen in FY12, after the setbacks experienced in FY11. The management is guiding for up to 1,000 new students for the facility in FY12, an almost 10% increase on HELP’s current total student numbers. We expect earnings to pick up from 2QFY12 onwards, as HELP’s major intakes will be from January to March 2012.

The risks include: (i) further regulatory changes; (ii) lower than expected student numbers; and (iii) decline in the demand for private higher education.

We are maintaining our earnings forecasts pending the release of the 4QFY11 results.

We maintain our “market perform” call on HELP (after upgrading the stock from “underperform” on Dec 1), with an unchanged fair value of RM1.80. We value HELP at 12 times FY12 earnings, after imputing a two times discount to the market’s estimated price-earnings ratio of 14 times due to the stock’s thin trading volume (12-month average traded volume of 26,000, against SEG International Bhd’s 958,000 and Masterskill Education Group Bhd’s 2.4 million). — RHB Research, Dec 16

This article appeared in The Edge Financial Daily, December 19, 2011.

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