EDUCATION (Sector Update: OVERWEIGHT)

Stock Name: SEG
Company Name: SEG INTERNATIONAL BHD

Research House: OSK

Price Call: BUY

Target Price: 2.17

Stock Name: PRESBHD
Company Name: PRESTARIANG BERHAD

Research House: OSK

Price Call: BUY

Target Price: 1.48

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

Education as one ofthe NKEAs. Recognizing the education sector as one of the key sectors thatwill drive the  growth of national incomeover the next 10 years and transform the nation into a developed economy by2020, the Government has reiterated its focus on this sector. It has recognized14 Entry Point Projects (EPPs) covering preschool to tertiary education to pushup the overall literacy rate of Malaysians as well as to encourage a highereducation take-up rate among citizens.

Rising  household income the key catalyst. Should the Economic Transformation Programme (ETP) succeed in pushing up Malaysia'saverage income per capita, we see this as a big boost to the private educationsector. This is evident in historical trends, whereby the number of localentrants into public and private tertiary varsities increase in tandemwith  rising  domestic real GDP per capita.  We attribute this to the increased willingnessto 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 ratelikely  to improve. There is plentyroom for improvement in the tertiary take-up rate among  our secondary school leavers which currentlystands at approximately 70%. As our real GDP per capita continues to expand, weexpect tertiary take-up rate to improve in tandem with  the increasing emphasis on quality tertiary education. We also expectprivate varsities to play a more important role due to a few factors, namelyaggressive capacity expansion resulting in more competitive pricing, innovativeprogramme packaging with options to do twinning programmes with reputable foreignuniversity partners as well as a decline in the global ranking of Malaysia'spublic institutions of higher learning, prompting parents to seek betteralternatives.

PTPTN woes to beslowly resolved. PTPTN first came into existence in 1999 with the initialaim to provide tertiary education funding for private varsity students.Nonetheless, the  Government has sinceextended  it to  public universities  students and it  is now  a source of funding for some80%  of students in public varsities and55%  in private institutions. Accordingto sources, the outstanding  loans forPTPTN  amount to some RM43bn being borneby about 2m students, with an annual allocation of some RM3bn for 200k students. We expect  the Government to stepup its loan collection efforts, having appointed the Inland Revenue Board (IRB)as the effective collection agent.

OVERWEIGHT. Allin all, we maintain OVERWEIGHT on the sector, as we see local educationproviders gaining strength in 2012, driven by Government initiatives to spur theprivate education sector.  As the PTPTNworks towards sorting out its collection woes, there appears to be a trendamong local institutions to tie up with more reputable foreign institutions,thus further enhancing Malaysia's appeal as an education hub.

Source: OSK188

OSK keeps 'buy' call on Prestariang

Stock Name: PRESBHD
Company Name: PRESTARIANG BERHAD

Research House: OSK

Price Call: BUY

Target Price: 1.38

Prestariang Bhd's (Prestariang) profit after tax for the fourth quarter of the financial year ended Dec 31, 2011 is expected to be within OSK Research Sdn Bhd's estimate of between RM10-RM11 million.

OSK Research in a research note here today said the results are likely to be driven by its information and communications technology training and certification division which usually experiences a peak in the second half of the year.

It said moving into 2012, the Prestariang management is aiming for an internal profit after tax of RM40 million for the new year and the research firm believes the target is achievable.

"We believe that the target, which implies a 19 per cent growth year-on-year is achievable, leveraging on the broader implementation of its in-house developed solutions, which typically yield better margins," it added.

OSK Research said the company is also working towards smoothening out its future earnings by focusing more on non-time sensitive contracts during the off-peak quarters to mitigate the seasonality impact.

The research house expects a more normalised and predictable earnings cycle going forward.

Meanwhile, it has maintained a "buy" call with a higher fair value of RM1.38 on the company as it feels increasingly upbeat on the prospects, riding on the growing adoption of its self-developed solutions. -- Bernama

Bags a RM14m Contract

Stock Name: PRESBHD
Company Name: PRESTARIANG BERHAD

Research House: OSK

Price Call: BUY

Target Price: 0.96

Prestariang rises and shines like a star

Stock Name: PRESBHD
Company Name: PRESTARIANG BERHAD

Research House: OSK

Price Call: BUY

Target Price: 0.92

Prestariang Bhd
(Sept 29, 53.5 sen)
Initiating coverage with a buy rating at 50 sen with a fair value of 92 sen: Prestariang is involved in the provision of information and communications technology (ICT) services focusing on professional training and certification, as well as the distribution and management of software licences. We like the company's sturdy order book of close to RM280 million, its established relationship with key partner Microsoft, innovative in-house developed products and its appealing valuation backed by a dividend yield of more than 10% in the next two years. ''

We see strength in Prestariang's two core businesses given their synergy and complementary characteristics, whereby ICT training and certification is typically provided together with the licensing of the software used in its training and certification. While it can be argued that Prestariang is a technology player, we see greater potential in its professional training and certification business, which pits it closer to education players such as SEGi, Masterskill and HELP. ''

Prestariang has to date secured an order book of close to RM280 million, with projects spanning one to four years up to 2015. Its anchor projects include the RM80 million industry-based certification programme, which received the nod earlier for renewal for another four years and its RM60 million MUSE programme through which it provides and maintains software licences for all public higher education institutions in Malaysia.

Its close rapport with valued partners such as Microsoft, Oracle, IBM and Autodesk, helped sustain profitability margins. Of note, Prestariang has established close ties with Microsoft, which has been its single most important partner for the last eight years for provision of software and training certification. Going forward, we see more upside potential for the group's profit margins going into FY12, with a target of 36% at the net level at the close of the year on greater economies of scale.

Prestariang also focuses on R&D activities to develop new programmes in-house by working with partners in related fields. We like its R&D-centric focus as creating its own intellectual properties could help to drive up margins as well as provide a launching pad for its regional expansion going forward.

Given its'' robust balance sheet with minimal capex requirements apart from R&D expenditure, management has set a dividend policy of up to 50% for the next three years. For our forecast earnings, this translates into a lucrative dividend yield of more than 10% for both FY11 and FY12 given the recent weakness in share price, which has retraced by >44% since going public in late July this year. ' OSK Research, Sept 29


This article appeared in The Edge Financial Daily, September 30, 2011.