Stamford College Bhd’s shares plunged 38% yesterday, hitting their lowest level since May 31, when Bursa Malaysia rejected its restructuring plan.
The education company, which faces suspension on Aug 3, saw its share price tumble 15.5 sen to end the day at 25.5 sen. Its shares traded between 20 sen and 28 sen during the day. Trading volume was heavy with 5.61 million shares changing hands, or 14% of its issued base of 40 million shares.
On Monday, the company said Bursa Malaysia had rejected its application for its proposed regularisation plan which involved the acquisition of a steel manufacturing business.
Bursa Malaysia’s rejection was premised on the concern that the plan did not comply with the Main Market Listing Requirements which specified the regularisation plan must be sufficiently comprehensive and capable of resolving all problems, financial or otherwise.
It added that the steel manufacturing business undertaken by Stamford College had only started operations in February 2010 and had yet to show it was able to generate profits and positive cash flows or be proven to be a viable business.
Another factor was that the company’s steel manufacturing business was highly dependent on a single supplier and single customer, which was a related party, to sustain its business operations.
Bursa Malaysia had highlighted that the education business is highly competitive with a low barrier to entry.
“Even though Stamford College has been profitable for the latest financial year ended Dec 31, 2009, it is uncertain if this can be maintained given that the group has been making losses over the years (prior to financial year 2009) and there are no significant changes in the company’s business plan for its education segment.
“As such, there is uncertainty whether the profits to be generated from the education business would be able to sustain the performance of the group given that the steel manufacturing business is still unproven at this juncture,” it said.
Stamford College is a PN17 affected issuer. The company, which operates one of country’s the oldest private colleges, has since lost market share to larger and more dynamic education groups like HELP International Corp, SEG International and unlisted players like Taylor’s College.
In March 2010, as part of its restructuring plans, the company had proposed to diversify into the manufacturing of steel products.
The company said its reason for diversification was due to the fact that the provision of academic courses was strongly influenced by the choice of university partners, and that Stamford College had experienced an abrupt termination of such collaboration agreements that had adversely affected its financial performance from 2004 to 2008.
Nonetheless, the company appears to have made some recovery in earnings in the past year, along with the rest of the education sector.
In 2009, the company reversed from earlier losses to post a net gain of RM2.24 million, or 5.6 sen per share. For the first quarter of 2010, it earned net profits of RM1.62 million, or four sen per share. Net assets per share stood at 56 sen.
This article appeared in The Edge Financial Daily, July 28, 2010.
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