HELP International Corp’s 4QFY11 earnings and the full year ended Oct 31, 2011 were within our expectations. Full-year net profit of RM13.1 million was slightly below our forecast of RM13.6 million. The company posted a 32.6% year-on-year decline in pre-tax profit to RM5.3 million, while net profit fell 44.6% to RM3.6 million.
Still, it was a marked improvement over 3QFY11, when HELP posted a net profit of just RM820,000 as the seasonally weak quarter was compounded by RM5 million in one-off relocation costs associated with its new facility in Fraser Business Park, Kuala Lumpur. The city branch opened in May after several delays caused by late delivery of the premises.
For the full year, revenue increased marginally by 2.7% to RM108.1 million. Due to the sharp fall in earnings in 2HFY11, pre-tax fell by 23.6% to RM20.4 million while net profit was 31.6% lower at RM13.1 million.
HELP has been plagued with several problems this year, both locally and abroad. Apart from cost overruns associated with Fraser Business Park, the delayed opening has also resulted in missed opportunities for student intakes.
Although a positive move, the recent promotion of HELP from university college to full university status has also resulted in increased manpower costs as HELP had to hire more PhD holders and improve staff-student ratios.
Another issue the company faced was the Ministry of Higher Education’s directive for education institutes to streamline their twinning programmes. As a result, HELP’s twinning programmes were transferred from HELP University College to another subsidiary, HELP Academy. The move necessitated additional one-off licensing and promotion costs, including obtaining new KDN licences for marketing and to secure accreditation for National Higher Education Fund Corp (PTPTN) loans for students.
On the revenue side, HELP is seeing a decrease in student numbers from China as it has become more affordable for students from China to study in the UK and US due to the strength of the yuan and relaxation in regulatory restrictions in those countries.
Expect a strong recovery in FY12
We expect a strong recovery next year as the worst appears over after a series of negative events this year.
We expect net profit to jump 30.5% to RM27 million in FY12, but to remain relatively flat in FY13. HELP’s shares have fallen substantially after the two successive quarters of weak results. At RM1.71, its valuations are fair at 14.3 times for FY12.
We continue to like HELP’s strong business model and brand name, which has helped to expand its student population base, extend its presence overseas and increase the appeal of its own degrees. While the company’s earnings were affected in FY11 as it digested its expansion, the expansion plans are also central to its growth strategy. The company aims to grow its domestic student base from around 12,000 to 16,000 by 2016.
The domestic expansion will be anchored by two new branches, in Fraser Business Park and Subang 2. HELP will also widen its target market by increasing the levels of education and courses — from mainly tertiary to post-graduate, secondary schooling, certificate and vocational courses.
We understand plans to expand into secondary and primary schooling are nearing fruition, with HELP planning to establish an international school at its Subang 2 campus. Some 2ha of the 9ha will be carved out for the purpose. With higher fees, stronger margins and a much larger market base, this venture should improve HELP’s earnings prospects.
Positively, many of the issues involving Fraser Business Park (the delay in its opening), Vietnam (a change in government regulations) and local regulatory changes (the segregation between twinning and local courses), have also been largely resolved and should not affect the company next year.
However, the impact of some of these may also be structural, such as the lower number of students from China seeking education in Malaysia, as well as a higher overall cost base due to its university status and operating multiple campuses.
The Fraser Business Park facility is fully operational and has started student recruitment. The current student population here is 1,500 — mostly transferred from HELP-ICT in Klang. Management is seeing healthy intakes, especially for its American degree programme and is targeting to add another 1,000 students by end-2012.
HELP is leasing about 220,000 sq ft of space at a preferential rate there, which can accommodate up to 5,000 students. The branch will cater largely for post-graduate, technical and vocational courses, and will host a wide range of new courses such as culinary, hospitality, performing arts and physiotherapy, among others.
At the main Damansara Heights branch, HELP is expecting student growth of about 10%, as the company is seeing an increase in its own homegrown degrees compared with the traditionally more favoured twinning programs.
A potential risk is its foreign student base. HELP has seen many Chinese students opt to pursue their education directly in the US and UK due to the strong yuan. The recent weakening of the ringgit is positive, but it is unclear if the move by Chinese students is a structural one, given the country’s rising affluence.
Cautious of cost escalation going into FY14
On the cost side, expenses related to the Fraser Business Park facility have been fully expensed but personnel expenses could continue to rise due to HELP’s new full university status. Expenses would also rise towards the end of 2013 and into 2014 when HELP completes and shifts to the new full-fledged campus in Subang 2 by end-2013. This could dampen earnings in FY14 again.
In Vietnam, student intake has resumed after missing out on half a year’s enrolment in the first six months of the year. This followed the Vietnamese government’s more stringent checks on education players aimed at weeding out degree mills. Earlier this year, the Vietnamese government had stopped foreign players from enrolling students until they were audited and verified.
HELP’s degrees in Vietnam, which are undertaken by Vietnam National University, have been audited and approved, and the government lifted the moratorium in July. HELP is now targeting enrolments for MBA and post-graduate degrees there, which fetch higher margins, before preparing for the high volume but lower margin tertiary enrolments early next year.
In the past, there were 1,000 to 1,500 students studying for HELP degrees in Vietnam. The company hopes to rebuild these numbers.
Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.
Still, it was a marked improvement over 3QFY11, when HELP posted a net profit of just RM820,000 as the seasonally weak quarter was compounded by RM5 million in one-off relocation costs associated with its new facility in Fraser Business Park, Kuala Lumpur. The city branch opened in May after several delays caused by late delivery of the premises.
For the full year, revenue increased marginally by 2.7% to RM108.1 million. Due to the sharp fall in earnings in 2HFY11, pre-tax fell by 23.6% to RM20.4 million while net profit was 31.6% lower at RM13.1 million.
HELP has been plagued with several problems this year, both locally and abroad. Apart from cost overruns associated with Fraser Business Park, the delayed opening has also resulted in missed opportunities for student intakes.
Although a positive move, the recent promotion of HELP from university college to full university status has also resulted in increased manpower costs as HELP had to hire more PhD holders and improve staff-student ratios.
Another issue the company faced was the Ministry of Higher Education’s directive for education institutes to streamline their twinning programmes. As a result, HELP’s twinning programmes were transferred from HELP University College to another subsidiary, HELP Academy. The move necessitated additional one-off licensing and promotion costs, including obtaining new KDN licences for marketing and to secure accreditation for National Higher Education Fund Corp (PTPTN) loans for students.
On the revenue side, HELP is seeing a decrease in student numbers from China as it has become more affordable for students from China to study in the UK and US due to the strength of the yuan and relaxation in regulatory restrictions in those countries.
Co-founder and president Datuk Paul Chan at HELP campus. The Fraser Business Park facility is fully operational.
Expect a strong recovery in FY12
We expect a strong recovery next year as the worst appears over after a series of negative events this year.
We expect net profit to jump 30.5% to RM27 million in FY12, but to remain relatively flat in FY13. HELP’s shares have fallen substantially after the two successive quarters of weak results. At RM1.71, its valuations are fair at 14.3 times for FY12.
We continue to like HELP’s strong business model and brand name, which has helped to expand its student population base, extend its presence overseas and increase the appeal of its own degrees. While the company’s earnings were affected in FY11 as it digested its expansion, the expansion plans are also central to its growth strategy. The company aims to grow its domestic student base from around 12,000 to 16,000 by 2016.
The domestic expansion will be anchored by two new branches, in Fraser Business Park and Subang 2. HELP will also widen its target market by increasing the levels of education and courses — from mainly tertiary to post-graduate, secondary schooling, certificate and vocational courses.
We understand plans to expand into secondary and primary schooling are nearing fruition, with HELP planning to establish an international school at its Subang 2 campus. Some 2ha of the 9ha will be carved out for the purpose. With higher fees, stronger margins and a much larger market base, this venture should improve HELP’s earnings prospects.
Positively, many of the issues involving Fraser Business Park (the delay in its opening), Vietnam (a change in government regulations) and local regulatory changes (the segregation between twinning and local courses), have also been largely resolved and should not affect the company next year.
However, the impact of some of these may also be structural, such as the lower number of students from China seeking education in Malaysia, as well as a higher overall cost base due to its university status and operating multiple campuses.
The Fraser Business Park facility is fully operational and has started student recruitment. The current student population here is 1,500 — mostly transferred from HELP-ICT in Klang. Management is seeing healthy intakes, especially for its American degree programme and is targeting to add another 1,000 students by end-2012.
HELP is leasing about 220,000 sq ft of space at a preferential rate there, which can accommodate up to 5,000 students. The branch will cater largely for post-graduate, technical and vocational courses, and will host a wide range of new courses such as culinary, hospitality, performing arts and physiotherapy, among others.
At the main Damansara Heights branch, HELP is expecting student growth of about 10%, as the company is seeing an increase in its own homegrown degrees compared with the traditionally more favoured twinning programs.
A potential risk is its foreign student base. HELP has seen many Chinese students opt to pursue their education directly in the US and UK due to the strong yuan. The recent weakening of the ringgit is positive, but it is unclear if the move by Chinese students is a structural one, given the country’s rising affluence.
Cautious of cost escalation going into FY14
On the cost side, expenses related to the Fraser Business Park facility have been fully expensed but personnel expenses could continue to rise due to HELP’s new full university status. Expenses would also rise towards the end of 2013 and into 2014 when HELP completes and shifts to the new full-fledged campus in Subang 2 by end-2013. This could dampen earnings in FY14 again.
In Vietnam, student intake has resumed after missing out on half a year’s enrolment in the first six months of the year. This followed the Vietnamese government’s more stringent checks on education players aimed at weeding out degree mills. Earlier this year, the Vietnamese government had stopped foreign players from enrolling students until they were audited and verified.
HELP’s degrees in Vietnam, which are undertaken by Vietnam National University, have been audited and approved, and the government lifted the moratorium in July. HELP is now targeting enrolments for MBA and post-graduate degrees there, which fetch higher margins, before preparing for the high volume but lower margin tertiary enrolments early next year.
In the past, there were 1,000 to 1,500 students studying for HELP degrees in Vietnam. The company hopes to rebuild these numbers.
Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.
