Wednesday, February 23, 2011

MEGB's Q4 2010's Report

Nothing amazing with a slight decrease in the quarter but an overall increase in net profit Year on Year (Y-o-Y) of 4.89%. The reason for this seems to be added expenditure on student related costs, advertisements and staff salary.

Full statement found here on Bursa.

So what do I think, ie: what's good and bad? And well, I'm not very sure of?


1. High Cash Reserves which can be a good sign if used well- Potential for dividends or a Buyback? Cash reserves has increased by RM 91 million along with cashflow. MEGB should be able to withstand a selloff by its foreign investors if it wants to but there is no mention of this concern at all. There is only mention that it may employ its positive cashflow for further expansion plans.

2. Growth is there - Student numbers grew from 17.6k to 18.4k. PTPTN concerns will not affect existing students. Expenditure has gone into new campuses - Five new campuses being constructed around Malaysia with the Bandar Baru Bangi Campus being able to enjoy its full fledged university status and award degrees in medical, nursing and allied-healtcare courses.

3. Dividends - Nothing has been said about dividends not going to be paid out and CIMB's research report seems to be positive on dividends of REIT-like levels - 8%+ at the current price levels. That's like FD interest rates on steroids!


1. Debt has increased Y-on-Y. Borrowings increased two times from roughly 14 million to 35 million. Interesting, deferred tax liabilities as doubles as well and I am not sure what to make of that.

2. MEGB seems to accept there may be a drop in PTPTN funding for its future students. This is a major concern with 90-95% of its students are funded by them. It will have to look at other ways to fund its students and this explains the aggressive expense in advertisments and marketing. With its high margins, it still has some pricing power and it can pursue overseas students within Asia.

3. Maybe I'm reading too much into the statement but the Outlook doesn't sound that great - "the Directors remain confident of achieving satisfactory performance for the financial year 2011". (page 14 of the statement, emphasis is mine) That's not enough! How about an excellent performance?


1. The CEO transferred shares to his wife recently -12 % of his 22% ownership of MEGB shares. (Personal opinion/speculation) This has caused some concern but my first thought was maybe for tax reasons. One to keep an eye on. Filing can be found here.

2. Foreign funds still have shares to dispose off if they are looking to totally wipe out their holdings of MEGB. This sell-off may cause a further drop in its price.

3. Litigation - There's a few cases against MEGB and this will need an eye on them as well. Currently being a lawyer, I should look further into this!

Going forward, I've increased my stake in MEGB but I will be cautious and have a keen eye on the actual student intake going forward with PTPTN loans possibly being tightened up and perhaps, some 'on the ground' research maybe is in order.

At its current price of 1.80+, I think there's still good upside to it but I may not agree with Target Prices of RM3.00+ so quickly. This is a defensive stock which is oversold. Remember, that at the time of its listing, there was alot of momentum going into Education stocks so its valuations was off at that time.

'Till then I'm slightly bullish on MEGB's propects and it's still an opportunity to dip into IMHO. What do you think?

Disclosure : I recently acquired more shares in MEGB, taking a bigger position on it. As for the contents of my post, please check my disclaimers section above. Please do your own research and come to your own conclusions and/or seek professional advice before making any investment decision.


  1. In one of the recently published Financial Info, there were some stats on the utilisation rate of each of MEGB's branches across Malaysia.
    Except for the Sabah branch, all other branches are under-capacity. Most severe ones being the Ipoh branch (current student pop. 2,961 - max cap 12,500), followed by Cheras and Kota Bahru. Going by the current enrolment growth rate, it will take MEGB another 20yrs to fill up Ipoh branch.

    With this under-utilisation issue at hand, the management is still talking about building new campus in Bangi? What is the rationale here? Is there plan to consolidate and maximise utilisation of resources? If there is, it surely was not mentioned in any recent published reports.

  2. Dear Chin Lee,

    Well spotted. I emailed them yesterday with your concerns and got a reply today - " The main intention of our listing is to fund the construct of our new
    University Campus as it provides significant saving in transportation and
    accommodation cost. In other word, instead of spending substantial amount in
    operating expenses we will utilise it for capex. Hence, this will further
    improve our profitability. Once this new campus is ready, one of the
    available options is for us to dispose of our current buildings. One of the
    main reason that we set up campuses in strategic locations was to attract
    more students and this is vital to our growth strategy.

    Feel free to reach out to us if you require any further clarification from
    us. Thanks."

    So to answer your question - Yes, there may be an effort to consolidate and maximise its resources.