(Dec 27, RM2.17)
Upgrade to buy from neutral at RM2.30 with revised target price of RM2.59 (from RM2.69): HELP’s FY10 revenue was 8% below our and consensus expectations but the better-than-expected margin led to its FY10 net profit coming in within our and consensus estimates.
Ebit margin for FY10 was higher at 26.1% compared with 22.6% a year ago, driven by the stronger demand for its home-grown programmes. Although its home-grown programmes generally fetch lower fees per student, they nevertheless command higher margins given that HELP does not have to pay royalty as it does for twinning or foreign courses developed by other institutions.
As anticipated, due to the weaker performance in 3QFY10 attributed to the summer break for courses that are conducted in collaboration with foreign institutions in the northern hemisphere, HELP’s 4QFY10 revenue was higher by 16.9% q-o-q, which led to PBT soaring by 56.5% q-o-q, further driven by the high fixed cost nature of the business.
Ebit margin was higher at 30.1% compared with 23.1% in the previous quarter. Moving forward, in view of the summer break for the courses done in collaboration with foreign institutions in the southern hemisphere in 1QFY11, we see a seasonally weaker performance in the quarter. However, we expect the stronger demand for its home-grown courses to somewhat tone down the seasonal effect for the upcoming quarter.
We maintain our forecast for FY11 and introduce our FY12 numbers. After adjusting for the current net cash of 32 sen per share versus 42 sen previously, our TP has been reduced from RM2.69 to RM2.59 based on 14x PER on FY11 EPS plus the current net cash of 32 sen per share.
Despite being lower, the TP still offers a more than 10% upside. As such, we upgrade our recommendation from neutral to buy. — OSK Investment Research, Dec 24
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