Stock Name: MEGB
Company Name: MASTERSKILL EDUCATION GROUP
Research House: CIMB

Masterskill Education Group Bhd
(Oct 19, RM3.34)
Initiate coverage at RM3.18 with outperform call and target price RM4.62: Masterskill is the ideal pick for investors seeking long-term exposure to two defensive sectors ' education and healthcare. It boasts strong fundamentals and growth, backed by its segment leadership, favourable healthcare education prospects, shortage of healthcare professionals and expansion plans. The negative impact of the delays of two new campuses in FY10 should subside in FY11/12. Masterskill's share price has recovered from its recent low but is still below its RM3.80 IPO price.

We begin coverage with an 'outperform' call and end-CY11 target price of RM4.62, based on 13.8 times CY12 PER which is in line with our target market PER, but a discount to the average PER of listed domestic and regional comparables. Potential re-rating catalysts include: (i) better than expected student growth and quarterly results; (ii) an improvement in investor sentiment on the stock; and (iii) investor preference for growth and defensive plays.

Growth is essentially a volume game for education providers. Masterskill has a total expandable student capacity of 36,000. Revenue is pegged to two sectors ' healthcare and education ' where demand is relatively resilient to macro factors. This underpins the group's growth outlook, backed by future capacity expansion which should ensure continued growth in student population. The shortage of healthcare professionals locally and globally is overall positive for the group.

Masterskill's (i) leading position in the industry with the highest market share in its segment; (ii) Ebitda margin of over 40%, superior to local education companies' 15% to 20%; and (iii) exposure to the healthcare and education sectors are key factors that will ensure strong fundamentals over the long term. ' CIMB Research, Oct 19


This article appeared in The Edge Financial Daily, October 20, 2010.