Education sector

Maintain hold: The Oriental Daily reported that the Ministry of Higher Education (MOHE) will impose a two-year moratorium on the setting up of new private institutions of higher learning from tomorrow. According to the report quoting Minister of Higher Education Datuk Seri Mohamed Khaled Nordin, the number of private institutions in the country is sufficient to meet current demand.

The government will focus on enhancing the quality of tertiary education in line with global standards to increase the competitiveness of local graduates. The exceptions will include world-renowned universities as well as institutions that are currently in the process of a status upgrade or pending an upgrade.

We are not entirely surprised by the move as there are too many tertiary institutions in Malaysia considering the size of our student population. Official MOHE statistics indicate that there are  498 private tertiary institutions in the country, comprising five foreign universities, 50 universities, 25 university colleges and 418 colleges, which altogether have an estimated total of some 500,000 students. At first glance, this works out to be a reasonable average of over 1,000 students per establishment.

But channel checks indicate that many of these, especially the private colleges, are either dormant or are operating on a too-small scale, with less than 50 students registered. Hence, we laud the ministry’s timely moratorium, as this would help to address the issues of oversupply as the government tackles the quality of our local education system in its move to transform the nation into a regional education hub.

Over the medium term, this will likely spark more mergers and acquisitions within the sector given that new players in the industry may have to buy out existing institutions to secure operating licences. This could lead to a sector-wide consolidation, especially among the smaller players, which in our view is positive to phase out less competitive education providers.

The impact of the moratorium on existing education providers remains unknown for now, as there is a lack of more affirmative indications from the ministry. In a worst-case scenario, this could curb future capacity expansion.

The management teams of Help International Corp Bhd (“neutral”, fair value: RM1.93) and SEG International Bhd (“neutral”, target price RM1.75) believe the implementation will likely have a minimal impact on their operations at this juncture. They have yet to receive any notifications from the ministry itself.

We consider Prestariang Bhd (“buy”, fair value: RM2.15) one of the last pre-moratorium beneficiaries as it is possibly one of the last education players in the country to have secured a full-fledged university licence from MOHE. — OSK Research, Jan 30

This article first appeared in The Edge Financial Daily, on Jan 31, 2013.