Masterskill CEO's Annual Report Statement - like it for his bluntness

I was reading the statement from the CEO of Masterskill, Edmund Santhara. I for once liked it for his candid remark. Read below:

"2011 was an active albeit challenging year for MEGB. We have had to face many uncertainties and unprecedented setbacks in the face of changing regulatory requirements, government decisions that are consistently inconsistent and the global economic slowdown."

It is easy to offer support when times are good, but our resilience and fortitude are definitely put to the test during these challenging times. However, thanks to the continued support and tenacity of our employees, management and shareholders who are true believers in our mission and vision, the professionalism of our practice in healthcare education is upheld. Despite the unprecedented setbacks, I am pleased to report  sustainable profits, strong cash flow, increased assets and undisrupted expansion plans.

Our focus to be the global leader in nursing and allied health education remains unwavering. I sincerely believe that as long as we stay true to our path, the bumps in the road of success only serve to remind us of the need to stay vigilant, adaptable, focused and driven to emerge stronger after the storm.

A CHALLENGING ENVIRONMENT
Unexpected. Challenging. Adapting. These are a few of the words that come to mind when I review the year that was. Unexpected were the reduction in the PTPTN’s loan scheme, the increase in the minimum entry requirement from 3 credits to 5 credits at the Sijil Pelajaran Malaysia (SPM) level by the Malaysian Nursing Board, and the increase in the ratio for teaching staff to student from the previous 1:30 to 1:20 for science programmes, in line with the Malaysian Qualification Agency (MQA) requirement. The PTPTN factor and the higher entry requirement caused the student enrolment at Masterskill to drop which affected the revenue, whereas the new teacher to student ratio increased the staff cost considerably.

Challenging was when the maximum value of PTPTN loans made available to each eligible diploma student was reduced from RM60,000 to RM45,000. Masterskill’s reaction was to reduce the tuition fees for its  diploma programmes to an average of RM50,000 per eligible student.

Adapting being one of the company’s core values, is what we had to do for the journey ahead of us as we broadened our scope of business and expanded ahead of time. Within the year, Masterskill widened its educational offerings through active collaborations.

Some upsides to 2011: The most notable development was the MoU inked with RMIT University, Australia to form a joint educational entity in Malaysia especially to set up a RMIT branch campus in Malaysia. The MoU holds good prospects, as the establishment of an Australian branch campus in Malaysia will cater for the growing demand, locally and abroad, of prospective students who wish to obtain a prestigious degree from a reputable Australian university. This collaboration is under the business diversification strategy in which Masterskill is the local partner for the foreign universitiy to establish a platform in Malaysia. Through this collaborative effort, a Technical Education and Vocational Training programme will also be explored. The components may include programme offerings, curriculum design & development and training of trainers.

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Here are my comments.

1. If it is using the PTPTN to fund the education loan for 95% of its students and make profit from there, this day will come, sooner or later - just that it happened sooner. He cannot blame the government as through Masterskill and MAHSA, they are causing oversupply of nursing students. What should the government do as it has done? Take a step back and evaluate the situation.
2. If the minimum qualification for intake is being improved from 3 credits to 5 credits are to be blamed and cause of its deterioration, this means that the students they have been taking are of low qualifications? How many students does not have 5 credits nowadays? We do not want nurses who have poor basic qualifications, do we?
3. With those type of students they are taking in, are they expecting the RM60,000 loan to be repaid. It is obvious PTPTN is facing these issues from students who are paying too high fees and not affording the repayment when they finished their courses.
4. Will Masterskill then to be able to get good students with the RMIT JV? They better look for higher quality students (and those that can pay back) if this is the case. Only then it will be a palatable education centre.

My worry is that it is currently blaming the poorer financial performance onto the "hand that feeds" it so far - openly. Bad move.

Masterskill: At RM1.15 do you now think it is cheap?

Not everything is about value. Exactly, a year ago at its price of RM1.70, Masterskill (MEGB) was regarded as a buyable stock. I would not blame anyone who looked at value and if you considered at its promises on paying 50% - 60% of its income as dividend and a year ago's (FY2010) profit of RM102 million - ya, probably quite attractive.

http://1-million-dollar-blog.com/masterskill-fair-value-target-price-compilation-dividend-yield/

The RM1.70 was already off by more than half its IPO price of RM3.50. And during then, most research houses provided a post valuation of more than RM3.80.
(See this - Masterskill riding on healthcare wave. - article as well.)

Now it is trading at RM1.15, valuing the company at RM471.37 million. Against its book value of RM516 million, the market value is trading at a discount of 8.7%. What failed them further?

As per above table you can look at the trend from its First to Fourth Quarter (I actually reversed it to show latest quarter first from left to right). What do you see? Huge negative trending!

Do you think it can reverse the trend fast? A definite no.

Masterskill's business is dependent on termed fees and most of its programmes are over a period of 3 to 4 years.  Hence, in a quarter of revenue, you will see a combination of its fees collection for students from first to fourth year. The fast and huge drop in revenue and profit within a year is in fact more than surprising.

This potentially could have meant that either a lot of the students have dropped out midway through the courses or they faced a lot of difficulties recruiting new students - or Both.

If you look at the fourth quarter results, we probably can guess that for its business to break even, they will need to achieve a revenue of RM50 to RM55 million a quarter.

From the IPO funds, Masterskill has gone on a spree of buying properties to build campuses and hostels for its students. After the purchases of the campuses, what do you think they need to do? They will need to fill up the campus. There are running costs to this. Hence, Masterskill's business model which is dependent on PTPTN's approval of loans to students will either have to change so that it is no longer dependent on the government loan or PTPTN will have to provide better support to Masterskill by increasing the students loan amount as it has done previously.

It will however be difficult to bet on the first point as the company was never built to address those challenges. The company was built to depend on government's assistance. It has never been built to pull students who depended on "FAMA's" (Father, Mother) funding.

Hence, for an investor of Masterskill and continuing to bet on Masterskill - you better hope that they get these reversal of decisions from PTPTN fast.

Serious Investing!

Too many nurses chasing too few jobs - remember Masterskill?

I have previously posted 2 articles on my apprehension over the call for Buy by investment advisors over Masterskill. Since my posting, Masterskill has dropped from RM3.80 to now RM1.20. Each year they are catering for more than 8,000 new students. I wonder how they can sustain.

Below is an article from www.freemalaysiatoday.com.

Too many nurses chasing too few jobs

PETALING JAYA: Is the government simply incompetent when it comes to the glut of nurses or are the Health Ministry and Higher Education Ministry officers on the take?

Parti Sosialis Malaysia (PSM) feels that there is more than meets the eye and it is suspicious that private colleges are greasing the palms of these officers.
Yearly, private colleges are producing about 12,000 fully trained nurses but there are only 1,000 to 1,500 nursing jobs in the private sector each year, according to PSM central committee member and Sungai Siput MP Dr D Michael Jeyakumar.
Jeyakumar said figures given to him in Parliament showed that in 2010, some 5,000 out of 7,500 nursing graduates could not find jobs as nurses and ended up working at other sectors or were jobless.
There are currently more than 37,500 nursing undergraduates enrolled in 61 private institutes teaching nursing. Other nurses are trained in public institutions.
Jeyakumar said PSM has, over the past couple of years, received dozens of complaints from graduate nurses and their parents, higlighting this issue.

 “Many of these girls can’t get jobs as nurses so they work as salesgirls, clerks, and receptionists, which may pay maybe RM800 when a staff nurse is supposed to get RM1,800 a month,” he said.
He said with such difficulty finding a nursing job, many are unable to repay their PTPTN (National Higher Education Fund Corporation) loans, and he asked the government to waive those loans.
“You have to forfeit the loan; if they can’t afford a job, how can you ask them to pay?”
Jeyakumar pinned the blame on the problems on the government officials from both the Health and Higher Education Ministries.
“The government’s regulation of private colleges giving nursing courses is very, very disappointing. The Higher Education Ministry and the Health Ministry are both involved. They are not doing their jobs properly and now we have a gross oversupply of nurses, some poorly trained who are unable to find jobs.

Big scandal, big weakness
He said the Health Ministry was the one that allowed private colleges large quotas for their nurse intakes. The Higher Education Ministry, on the other hand, was the one that regulates the institutions and gives out licences.

 “It is a big scandal and big weakness in the system. We are saying the whole thing is a mess. We want the government to tell us whether it is incompetence or is it because the private colleges are giving financial inducement to officers in the Health Ministry? I want them to check as there are only either of these two possibilities,” said Jeyakumar.
Jeyakumar said that sources within the nursing colleges indicate that the profit margin for nursing courses was about 50%.
“So for a typical three-year diploma course costing RM55,000, the private college can get more than RM25,000. This goes into the hundreds of millions in profits, there is huge money there (RM25,000 x 12,000= RM 300 million),” he said.
Jeyakumar said the problem was the weak structure that is influenced strongly by financial inducements.
He added that in the whole scheme of things, only the owners and shareholders of the colleges profit.

 “Obviously profit seems to be the main objective here. We want the public, the parents of those after SPM, to know. We don’t want another 10,000 cheated again in future years,” he said.
The government now should cut down and freeze the intake into the private sector, said Jeyakumar, who also called on the government to review its quotas and licensing.
In April 2010, The Star quoted Higher Education Minister Mohamed Khaled Nordin as saying that the government was stopping more colleges from having nursing courses to prevent an oversupply of nurses and other problems arising from graduate unemployment.
“There will be no more private institutions providing nursing courses as we are already on the right track to achieve the recommended World Health Organi­sation nurse to population ratio of 1:200,” he was quoted as saying.
On Dec 13 last year, PSM handed over a memorandum to the Higher Education Minister on the issue, but claimed that there has been no active feedback so far.

Serious Investing!

Masterskill - NOT that skillful after all

After my posting as below, I have gotten them right from day one:
Masterskill: Is it really that good?
FMR LLC (a unit under Fidelity Management) has been acquiring the shares of Masterskill between RM3.90 and RM4.20 per share between May to Sep 2010. Now they are selling desperately and my most recent guess is that they are selling down from RM3.80 onward to recently below RM2. Smallcap world fund has joined in the fun by selling as well. Why is FMR selling when this company has just been listed on Bursa? I guess either the investor (professional as they may think) has been conned by Masterskill or they play along with the owner, but who would you think as a professional investor would allow the public to see that they have made a mistake? On paper, they had made a mistake, hence the selling. Remember MEGB's (Masterskill) revenue is fully supported by PTPTN, hence government. Their revenue is 95% contributed from there. Do you think they are worth as much as RM800 million as at todate? Way higher than any other colleges in Malaysia (HELP, Inti and others) offering mainly nursing courses? How many nurses does the country needs? At its height, MEGB was valued as high as KPJ group, one of the largest private hospital chain in the country. Well, well, well.

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Update - 11 April 2012

Now with PTPTN under contention as some of the loans to the nursing students went bad, the maximum loan that can be forwarded to these students have been reduced to RM45,000 from RM60,000.

Anyway, what do you expect the nursing students to do. Do you think they can pay back the loan with a basic salary of RM1,200? That is paying RM4,500 to RM6,000 a year without even considering interest yet.

Earlier article on Masterskill:  Not worth the IPO price?
http://malaysianinvest.blogspot.com/2010/04/masterskill-is-it-really-that-good.html


Serious Investing!

MASTERSKILL - Probably not worth the IPO price?

I have been looking around for alternative comments regarding the new IPO wannabe - Masterskill - in Malaysia but have not found any worth reading.

A month ago since, I've already been preempted that the market is already buzzing with Masterskill going IPO - especially CIMB (as they are the ones who are going to carry the company - of course they are supposed to say good things - and also probably they are starting to believe their own bullshit). Masterskill is the country's largest operator of private nursing college in Malaysia.

Here I am probably going to be a few who are probably going to have a negative view of this company based on following points:

- first dangerpoint in an investment - over reliance on government - 95+ percent of its students are PTPTN backed. (For those who do not know, PTPTN is a government aid to students who are pursuing tertiary education.) I am presuming that PTPTN is assisting Masterskill a lot in terms of attracting students from rural areas. These students do not have to pay from their own pockets during the tenure of their studies. But what they do not really get is that they have to repay the loan after their studies.

- The course itself is not cheap (Masterskill is charging some RM60k per student inclusive of fees, accommodation - from my calculation of revenue of RM290 million / 15,000 students which comes to RM19,333 per year hence for a 3-year course it comes to RM60k) - think of newly graduated nurses that do not earn that high to pay their loans after they graduate. It seems that to be a nurse, the tuition fees are not cheap. My source from one of the largest private hospital chain in Malaysia informed me that starting salary for their nurses is between RM1200 and they can only probably earn RM1900 with all allowances and OT inclusive.

- for a similar fee of RM40k-45k for the entire course, a student in Malaysia can probably obtain a better degree (but this of course may not necessarily obtain the loan assistance from government).

- with a PE multiple of assuming 13x - 14.5x (this is what Masterskill is asking for hence valuation is above RM1.4 billion) and PAT (2009) of RM97 million it is already going to be almost simlar in size compared to KPJ? KPJ (at current market value of RM1.55 billion) is an established private hospital group with various income stream. It does not have to rely on a single income stream unlike Masterskill - how is Masterskill supposed to be as big as KPJ in terms of market valuation? This is a little mind-boggling.

- HELP and SEGi are both currently valued at RM220 - 230 million each in the market, Masterskill is valuing itself more than RM1.4 billion? Although one may say that PE wise it can be fairly valued as against these two companies, but for how long can Masterskill maintain its momentum? Is this company one of those who has a business model that rides on the sudden surge of need as well as with a little help from Government of Malaysia, they manage to achieve certain successes for only a short period? But in the long run, will its business model that relies on PTPTN (i.e. government loans to students) sustain?

- the CEO has mentioned that they are targeting overseas expansion. I am a bit apprehensive as its business which relies on loan to local students, how much can they attract foreign students this way.

I think their asking price is way too expensive, but I may not be surprise that the take up rate can be good as they seem to market this particular IPO well, and judging from the market's excitement over Masterskill due to their story line as well as growth, the market can be excited but not me.

I would love to see how well they will do 3 years down the road. Will they be another GPacket or many other companies in Malaysia that has a loud IPO but fizzle out on its performance over time?

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Update: 20 April 2012
Well! This stock is a big time failure! Dropping from RM3.50 during IPO to now RM1.16. I probably was overly careful in my analysis. If you remember, many analysts (professionals?) were giving a positive call on this stock.

Serious Investing!