Thursday 30 May 2024
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This article first appeared in The Edge Malaysia Weekly on November 13, 2023 - November 19, 2023

EDUCATION is undeniably an important sector in any economy given how it nurtures and builds a future workforce that will keep the economic engine running. Yet, listed education stocks on Bursa Malaysia have gone unnoticed by investors, who do not seem to ascribe much value to the segment.

“It is not seen as an exciting sector for investors and is seen as pretty conventional. It also does not get enough exposure from the research houses or the media,” says a market observer.

There are only two companies on Bursa Malaysia in the conventional tertiary education space: SEG International Bhd (SEGi) and Cyberjaya Education Group Bhd (CEGB).

Some also attribute the lack of investor interest to the companies’ shares being tightly held by major shareholders, making those available for trade in the open market rather limited.

Even so, CEGB’s free float of 25.94% and SEGi’s of 29.01% are much more than Bursa Malaysia’s minimum free float requirement of 15%.

However, both companies have major shareholders who hold on to a significant portion of the shares. For CEGB, its single largest shareholder is Tan Sri Dr Palaniappan Ramanathan Chettiar, who through his private vehicle Special Flagship Holdings Sdn Bhd, owns a 58.16% stake.

On the other hand, SEGi’s largest shareholders are its managing director Tan Sri Clement Hii Chii Kok, who holds 32.42%, and Pinnacle Heritage Solutions Sdn Bhd, which has a 24.4% stake. Pinnacle Heritage is controlled by private equity group Navis Capital Partners and has a shareholders’ agreement with Hii. Collectively, the two control 56.82% of SEGi.

Lacklustre interest in SEGi is evident in the average trading volume, which over a period of a year amounted to some 96,000 shares. Year to date, the counter has gained a mere 0.5 sen, closing at 65.5 sen last Friday, valuing the company at RM801.44 million.

But while trading volume at SEGi is tepid, the same cannot be said about CEGB. The group’s trading volume for a one-year period averaged 10.1 million shares. That said, CEGB is a penny stock, closing at 10.5 sen last Friday, representing a 70% gain year to date. At the start of the year, it was trading at 6.5 sen. At the current price, CEGB has a market capitalisation of RM176.30 million.

It is no surprise then that the counters also do not garner much interest among institutional investors and banks. CEGB has only one institutional investor as a shareholder — AHAM Asset Management Sdn Bhd, which holds a 1.25% stake. SEGi has slightly more interest from the banks, with AmBank (M) Bhd holding 4.96% and Maybank Investment Bank Bhd, 3.30%.

Enrolment numbers still below pre-pandemic years

Competition within the private tertiary education sector is steep. Statistics from the Ministry of Education show that in 2022, there were a total of 416 private higher education institutions (PHEI) — an arguably disproportionate number given that Malaysia’s population is 32 million.

Still, it is a decline from the 435 institutions in 2021 — an indication of the competitive landscape within the sector. The biggest drop is seen in PHEI with college status, with their numbers falling from 335 in 2021 to 316 in 2022.

Enrolment of students is an important metric for a PHEI’s success, as it provides a steady cash flow to sustain operations, which have high fixed costs.

The Covid-19 pandemic has proven that the education sector might not be as recession-proof a business as perceived.

The number of new students registered in PHEI declined gradually between 2018 and 2022. In 2018, there were 202,949 new students but in 2021, there with 164,760. The number rebounded slightly to 171,889 in 2022 but is currently still below what was recorded in 2018.

Enrolment numbers — students studying at the PHEI, including new students registered — have been on a steep decline, from 668,689 students in 2018 to a mere 59,906 students in 2022, with no rebound yet in sight, notwithstanding the normalisation of activities post-pandemic.

SEGi did not buck the trend, as its annual reports reveal that its students had declined from 20,000 in 2018 to 16,000 in 2022.

CEGB does not provide data in its annual reports on the number of enrolled students but in a circular to shareholders on Oct 6, 2022, it mentioned that its flagship university — University of Cyberjaya — had a total of 3,939 students as at June 2022, an increase from 2,597 as at Dec 31, 2018.

Education stocks need a catalyst

SEGi’s financial performance also reveals a downward trend. Revenue slid from RM252.14 million in FY2018 to RM213.94 million in FY2022; net profit dipped from RM42.16 million to RM40.19 million.

For the cumulative six months ended June 30, 2023, SEGi’s net profit amounted to RM6.89 million against revenue of RM93.49 million.

CEGB recently changed its financial year end to June 30. For the cumulative 18 months ended June 30, 2023, it recorded a net profit of RM9.04 million against revenue of RM184.67 million.

In the financial year ended Dec 31, 2021, the group recorded net profit of RM3.5 million on revenue of RM107.92 million.

Given the competitive nature of the PHEI landscape, market observers believe that the sector needs to innovate in order to attract students. Improving the quality of teaching and syllabus would also elevate their stature. For instance, there is a growing trend of moving towards digital learning from conventional methods of learning in the physical classroom.

It is worth noting that Paramount Corp Bhd, whose core business is property development, divested its majority stake in UOW Malaysia (formerly known as KDU) in 2019, leaving it with a 35% stake.

In a recent interview with The Edge, Paramount deputy group CEO and executive director Benjamin Teo said that the group was still willing to explore opportunities involving education, but that it may not be in conventional bricks-and-mortar schools.

The group currently has an investment in OpenLearning Ltd, an Australian online education platform for tertiary educational institutions.

To SEGi’s credit, it has also diversified to include online learning for its students. It has launched the MetaCampus, Malaysia’s first university in the metaverse, which allows students to learn through an immersive 3D virtual learning experience.

To further widen its suite of offerings, it also recently acquired three K-12 schools after taking over Peninsula Education Sdn Bhd, Imperial Education (Ipoh) Sdn Bhd and Peninsula Private Education Sdn Bhd, which will enable the group to operate two international schools and one private school.

The schools were acquired from HCK Education Sdn Bhd and Global Activate Sdn Bhd, companies under HCK Capital Group Bhd, which were founded by Hii and serve as his investment vehicles.

As for CEGB, whose core programme is in the field of medicine, it can be seen to have applied a different approach to act as a “hook” or to elevate the profile of the University of Cyberjaya. Recently, it appointed former health director-general Tan Sri Dr Noor Hisham Abdullah as chancellor. It has also appointed Dr Maszlee Malik to lecture on selected topics in humanities and education-related subjects, according to the former education minister’s post on his social media. Maszlee lectured at the International Islamic University before entering politics in 2018.

Valuation higher than regional peers

Interestingly, the average price-earnings ratio (PER) of similar education groups in the region stands at 12.9 times. SEGi and CEGB both have above-average PERs and are the highest among their peers at 30.04 times and 22.34 times respectively.

There are seven companies in the region with similar businesses to SEGi and CEGB, according to data tabulated by Bloomberg. However, in ringgit terms, both companies have the smallest market capitalisations of well below RM1 billion, especially CEGB.

When it comes to return on equity, at 19.5%, SEGi is above the peer average of 6.77%, while CEGB falls below the average at 3.19%.

Out of the seven counters, only four pay a dividend, with the average dividend yield at 4.95%. SEGi’s dividend yield is 3.97% while CEGB does not pay a dividend. 

 

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