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