MEGB reported its results for QE30/6/2011 on August 26. Its net profit declined by 49% q-o-q or 48% y-o-y to RM11.6 million while its turnover also dropped by 11.0% q-o-q or 14.7% y-o-y to RM65.8 million. The drop in its net profit was attributed to higher depreciation charges & staff costs due to its on-going expansion. MEGB would require higher revenue in order to recover the increased overhead. Instead, MEGB's revenue declined. This is a very worrying sign. From Note 3 to the account, we can see the decline was attributable to two factors:
1. Lower PTPTN loan for diploma students, from RM60,000 to RM45,000. This caused MEGB to reduce its student fee to RM50,000.Unless, these two factors are revised, I believe MEGB's financial performance would not recover anytime soon. MEGB has always targeted students from the lower income group which are very dependent on PTPTN loans.
2. The intake requirement has been raised from 3 credits to 5 credits in SPM examination.
Table: MEGB's last 9 quarterly results
I have appended below the charts for MEGB's top-line & bottom-line performance for the past 9 quarters as well as the profit margin during the period. We can clearly see that MEGB's profit margin began to slide almost immediately after its listing. In the past 2 quarters, MEGB's revenue has been sliding due to reasons stated above.
Chart 1: MEGB's last 9 quarterly results
Chart 2: MEGB's last 9 quarterly profit margin
Financial Position
As at 30/6/2011. MEGB's financial position is deemed satisfactory with current ratio at 4 times & negligible gearing of 0.1 time. It has cash in hand of RM132 million as well as Receivables, Deposit & Prepayment of RM130 million. It is quite normal to collect some fees or deposit upfront which are either booked in as cash or Receivables, Deposit & Prepayment.
Valuation
MEGB (closed at RM1.21 now) is trading at a PE of 10 times (based on annualized EPS of 12 sen). At this PE multiple, MEGB is deemed fairly valued.
Technical Outlook
MEGB has broken its strong horizontal support at RM1.60, which happened to be its recent low. A new all-time low is a very bearish development and MEGB would have to find some support somewhere & recover from the persistent selling. Could it find this support at the psychological RM1.00 level? Only time will tell.
Chart 3: MEGB's daily chart as at Sept 2, 2011_3.00pm (Source: Quickcharts)
Conclusion
Based on poor technical outlook & financial performance, MEGB is expected to slide further. While the temptation to buy into the stock is alluring due to the sharp decline, the stock could be a value trap as it could get even more attractive as the price continued to slide. I believe a recovery is only possible once the revenue has stabilized & begins to recover. Another stock with a similar problem is Haio.
No comments:
Post a Comment