Period     2Q13/1H13

Actual vs.  Expectations   The group’s 6M13 net profit of RM6.9m was below expectations which only made up 41.8% and 36.3% of  ours and the street’s full-year earnings estimates respectively. The main culprits were the lower number of classes conducted amid holidays and festive periods coupled with weaker enrolment particularly in the International Student segment.

Dividends    No dividend was declared in 2Q13 as expected. 

Key Result Highlights   YoY, the group’s 1H13 revenue of RM62.4m (+1.3%) was tepid on the back of a slight improvement from domestic enrolments coupled with the soft enrolment of foreign students as a result of the strict vetting process implemented by EMGS for visas approval. In addition, management indicated that the higher opex of RM53.7m (+6.5%) in 1H13 was mainly due to the higher staff cost, no thanks to the  new hiring of staffs for its international school that is expected to commence by early next year. The lower operating income (-14.2%) has also pushed down the group’s net profit by 17.2% to RM6.9m. Margin-wise, the group’s EBIT margin fell to 18.0% (versus 6M12: 23.0%) due to higher operating expenses, which mainly consist of staff costs that are usually fixed in nature.

QoQ, the group recorded a higher net profit of RM5.1m (1Q13: RM1.9m) mainly due to: 1) the higher local students intake that boosted up the revenue to RM33.7m (1Q13: RM28.7m) due to seasonal factor; and 2) a lower effective tax rate of 32.1% (1Q13: 45.2%) mainly due to the tax loss of its subsidiary and certain expenses being not deductible for tax purposes. 

On a positive note, management guided that the operation of HELP CAT campus in Frasier Business Park has managed to record a lower loss of RM3.5m in 1H13 (vs. RM5.5m in 1H12). Going forward, management expects to cut the loss to RM5.5m in FY13 (vs. RM8.5m previously).

Outlook    We believe HELP’s earnings will continue to be affected in the near term if the visas delay persists due to the tightening of the entry requirements. However, we are still positive on the stock over the long run underpinned by: 1) the upcoming first intake of HELP International School (HIS) students in Jan-14, which is expected to contribute positively to its 1Q14 earnings and 2) the introduction of five new home-grown programmes in FY13.

Forecasts    Post-results, we have reduced HELP’s FY13E-FY14E earnings by 21% and 14% to RM13.0m and RM16.6m respectively having factored in: 1) a lower number of its student base assumption by 5% to 11.0k (vs. 11.6k previously) in FY13, in view of the potential slower intake of foreign students; and 2) the fact we have re-aligned our 200 international students’ registration income assumption to Jan-14 instead of Sep-13 as per management guidance, which results in the net reduction of RM2.4m and RM0.6m of registration income in our financial model in FY13 and FY14 respectively. 

Rating  Downgrade to UNDERPERFORM 

Valuation     Our HELP’s TP has been lowered to RM1.88 (from RM2.00 previously) after we rolled over our valuation base year to FY14E but with a lower targeted PER of 16.1x (from 17.2x previously). 

Risks    A reduction in its student enrolment.

Source: Kenanga