HELP ... Mar10

Robust 1QFY10, net profit doubles
On track for continued 20% EPS growth in FY10-11
Low P/E of 8x FY11, net cash 98 sen per share
Underlying business, excl cash & building comes “free”

HELP International Corp posted another sterling set of results for 1Q FY Oct 2010. Earnings at the education company continue to expand at a doubledigit clip, underscoring its resilience and strong branding. Margins also expanded significantly, thanks to rising demand for home-grown degrees and financial prudence measures during the recession.

For 1Q FY10, revenue rose 12.7% y-y to RM23.5 million. Pre-tax profit increased more significantly, by 63.4% y-y to RM3.8 million as did net profit, which almost doubled to RM2.4 million.

This accounted for 13% of our full year net profit forecast of RM18.5 million, which is within expectations as its earnings are seasonal. As a comparison, earnings in 1QFY09’s accounted for just 8% of the full year’s total.

HELP’s earnings are highly seasonal as the company recognizes revenue and profits according to the classes conducted for each student enrolled, rather than on a pro-rated basis across the year.

As such, its earnings are traditionally weak for the first and third quarters for its October financial year (Nov-Jan and May-Jul) due to the year-end and mid-year holidays. Earnings are very strong in the second and fourth quarters (Feb-Apr and Aug-Oct) when classes are in full swing.

The growth in turnover and profits reflect increasing student enrolments and fee increases, which are felt over several years. More important is the significant increase in profitability and margins. Pre-tax margin expanded from 11% to 16% y-y, despite being the seasonally slow quarter.

This was due to a higher proportion of students studying for home-grown degrees, ie those awarded under the “HELP University College” banner, which reduced payments to external universities. In addition, it also instituted better cost-management efforts during the recession.

HELP’s balance sheet remains very strong. Despite paying an initial deposit of RM5 million for the purchase of the HELP Residence hostel, its net cash position remained virtually unchanged over the last quarter. HELP Residence will cost RM50 million, but to be paid over five years.

Net cash stood at RM87.2 million in Jan 2010. This is equivalent to a significant 98 sen per share – or 48% of the current share price of RM2.03. The sum includes RM30.8 million for fees paid in advance, but excludes the RM20.3 million allocated for the purchase of 23.3 acres of land for its new campus in Subang 2, Sungei Buloh.

The acquisition of both the Subang 2 land and HELP Residence (the latter for RM50 million, but to be paid over 5 years), are pending regulatory approvals, and will be completed this year.