Is foreign selling in Masterskill finally over?

Written by Yantoultra Ngui Yichen  
Monday, 04 April 2011 11:54

Could selling by foreign shareholders in Masterskill Education Group Bhd — the biggest catalyst for its depressed share price — be finally coming to an end? According to analysts, that is a strong possibility, judging by the high volume traded in the last six weeks, and especially late last week, plus the fact that Masterskill’s share price has since rebounded strongly.

Since hitting an all-time low of RM1.67 on March 15, the stock has rallied 28.7% to hit RM2.15 last Friday.

Despite the recent rebound, the stock is trading at just half of its all-time high of RM4.30 and 43% below its IPO price of RM3.80.

It was the sixth most actively traded stock last Friday, gaining 23 sen or 12% to RM2.15 on heavy volume of 30.58 million shares.
If the foreign selling overhang is over, analysts expect Masterskill’s share price to better reflect its fundamentals.

After the debut in May last year, shares of the nursing and allied health sciences educator surged to a high of RM4.30 two months later compared with its IPO price of RM3.80, before it spiralled downwards.

Heavy foreign selling by two US-based portfolio funds — Smallcap World Fund Inc and Fidelity Management and Research LLC — was the key reason behind the collapse in its share price, even as the company delivered strong earnings that were within expectations.

Concerns on the ballooning deficit at Perbadanan Tabung Pendidikan Tinggi Nasional (PTPTN), the National Higher Education Fund Corp, as a result of a rising number of default payments were said to have accelerated the selling in Masterskill.

Over 90% of Masterskill’s students are financed by PTPTN loans.

The two portfolio funds ceased to be substantial shareholders of Masterskill in mid-February. This means that their respective stakes fell below the 5% threshold and they do not need to disclose further sales.

From the volume traded since then and assuming the two funds are the largest sellers of Masterskill shares at depressed prices, it would appear that the bulk or possibly all of their remaining shares may have already been disposed of.

When contacted, Masterskill officials declined to comment on its foreign shareholding.
Smallcap ceased to be a substantial shareholder after disposing of 230,200 shares or a 0.56% stake in the firm on Feb 16, paring its total shareholding to 20.48 million shares or a 4.99% stake.

On the other hand, Fidelity ceased to be a substantial shareholder after it sold 167,400 shares or a 0.41% stake on Feb 10, reducing its interest to 20.43 million shares or a 4.98% stake. Collectively, both funds had 40.91 million shares left in mid-February this year.

Between Feb 17 and April 1, the counter saw a total of 109.57 million shares changing hands, with 30.58 million shares traded last Friday alone, according to calculations by The Edge Financial Daily. This was nearly three times the total amount of shares held by the two funds.

Incidentally, between Feb 17 and March 15, when the stock hit an all-time low of RM1.67, a total of 43.76 million shares were transacted over 19 trading days, according to estimates by the daily.

This was slightly more than the shares held by the two US funds, suggesting that selling pressure might have climaxed then when the stock reached its nadir before rebounding. 
Given the sharp fall in the share price, analysts see value in Masterskill. Seven out of eight analysts have “buy” recommendations on the stock.

The consensus target price on the stock is RM4.60, according to Bloomberg data. This is more than double last Friday’s closing price of RM2.15.

Maintaining a “trading buy” recommendation on Masterskills, OSK Research, for instance, said the stock is currently trading at an alluring price-to-earnings ratio (PER) for FY11 while offering a dividend yield of more than 7%. It has forecast earnings per share of 28.7 sen for FY11, implying a forward PER of 7.5 times. Its target price for the stock is RM3.44 based on 12 times PER for FY11.

Masterskill declared a final single-tier dividend of 7.9 sen a share last Wednesday, translating into total single-tier dividends of 14.9 sen for FY10.
Based on last Friday’s closing price, the counter fetches a high net dividend yield of 6.9%.

Masterskill’s net profit for FY10 rose almost 5% to RM102.14 million from RM97.38 million a year ago on the back of a 15.49% increase in revenue to RM315.74 million from RM273.39 million.

With earnings per share of 24.9 sen, the stock is trading at a historical PER of just 8.6 times.

Its cash flow from operating activities increased to RM109.5 million in FY10 from RM101.1 million a year ago.

In addition, the net cash position had also improved to RM99.41 million as at Dec 31, 2010 from RM30.23 million a year ago, allowing the company to capitalise on expansion at an opportune time.

On the concern about PTPTN funding, OSK Research said it was optimistic that the impact should be insignificant as the new loan allocation, if implemented, would cover more than 75% of a typical tertiary course.

It is learnt that Masterskill’s management is currently pursuing its recent appeal against PTPTN’s new ruling capping loans of RM45,000 for new courses.

An analyst also said the government is unlikely to stop funding the programme, which is an important national initiative to help students finance their higher education. “The government is more likely to focus on the collection process through the Internal Revenue Board and other means, rather than stop funding”, he added.

Notwithstanding that, Masterskill continued to take a beating in the subsequent months as Fidelity and SmallCap World disposed of their shares in the company.

As OSK Research put it, the high foreign ownership could keep investors’ interest at bay as Asian inflation fears could trigger portfolio reallocation.

Nevertheless, things could be turning around as signs are pointing towards a potential end of selling by foreign funds.