We are maintaining our NEUTRAL stance on the sector due to the lack of  rerating  catalysts,  while  continuous  regulation  hiccups  in  the industry  could  potentially  hurt  profits  further  in  the  near  term. Prestariang (PRES MK, BUY, FV:MYR2.70) remains as our Top Pick for the  sector  given  its  positive  prospects in  ICT  training  for  the  oil  & gas (O&G) industry along with its long-term fundamentals.  

- Visa  woes  potentially  lifted.  Earlier  this  year,  the  Ministry  of  Higher Education  (MoHE)  established  a  one-stop  processing  centre  for  foreign student  visa  approvals  called  Education  Malaysia  Global  Services (EMGS)  which,  unfortunately,  somewhat  slowed  down  visa  approval processes and in turn, resulted in a 30.0-40.0% reduction in the number of  new  foreign  students  being  enrolled.  However,  recent  media  reports indicate that EMGS will be introducing a “green lane” policy in October for  private  institutions  that  have  achieved  Tier-5  and  above  under  the Malaysian higher education rating system, or SETARA.  We believe that this  green  lane  policy  could  spell  good  news  for  private  education institutions  under  our  coverage  as  it  would  accelerate  the  visa application process. Note, however, that the implementation of this new policy may take some time.   

- 2Q13  earnings  disappoint.  Three  of  the  four  companies  under  our coverage, namely: i) Masterskill Education (MASEG MK, NEUTRAL, FV: MYR0.50), ii) SEG International (SYS MK, SELL, FV: MYR0.83), and iii) Help  International  Corp  (HELP  MK,  NEUTRAL,  FV:  MYR1.69),  failed  to make  the  earnings  grade  due  to  slow  student  enrolments  as  well  as increased  competition.  Thus,  we  continue  to  see  a  challenging  2H13 given the lack of re-rating catalysts.

- HELP  expanding  into  private  international  schools.  We  continue  to see potential in the private international school space given the growing demand from mid- to upper-income households willing to pay a premium for  private  education.  HELP’s  first  international  school  is  set  to commence  classes  by  Jan  2014  with  a  targeted  initial  intake  of  400 students.  Meanwhile,  SYS  is  also  proposing  to  establish  its  own international  school  on  a  12-acre  site  in  Bandar  Setia  Alam,  Selangor, which the company acquired in June 2012.   

- Maintain  NEUTRAL.  We  are  still  NEUTRAL  on  the  sector,  as  student intakes are anticipated to be softer in the near term given the escalating competitive  landscape  and continuously  unfavourable  regulations  in  the education space. Prestariang (PRES MK, BUY, FV: MYR2.70) is still our Top  Pick  for  the  sector,  due  to  its  positive  prospects  on  ICT  training  in the  oil  &  gas  (O&G)  industry  as  well  as  the  company’s  long-term fundamentals.

Source: RHB