MEGB- losses increased

Result Update

MEGB has just reported its result for QE30/6/2013. Its net loss increased by 41% q-o-q or 267% y-o-y to RM18 million while its revenue dropped by 33% q-o-q or 64% y-o-y to RM14 million. This double whammy could well spell the death knell for MEGB. The factors that contributing to this situation are:
1. Reduction in student loans from PTPTN (as many of MEGB students are from lower income group)
2. Higher entry requirement which caused a drop in student enrollment
3. Higher depreciation charges; and
4. Higher staffing cost due to requirement stipulated by Malaysian Quality Agency

Though it was not stated in the account, I believe that the private education sector is now facing tremendous competition due to excessive supply and this put pressure to cut prices which may cause the profit margin to compress further.

All in all, the prospect for MEGB is quite grim. The company took the first step to restructure its operation by disposing 10 properties in Negeri sembilan in May for RM58.9 million.


Table 1: MEGB's last 8 quarterly results


Chart 1: MEGB's last 17 quarterly results 

Stamford College revisited

The problem in MEGB reminds me of Stamford College Bhd ('SCB'), a private education group that was listed from 1999 to 2012. SCB started to report losses in 2003 and returned to breakeven operation in 2009. It ran fool of PN17, GN 3 (for more, go here) and was delisted in early 2012. The chart below shows the top-line and bottom-line of SCB for those year as well as the Net Assets p.s. The stock was last traded at 24 sen or 46% of its Net Assets. This may be a guide to where MEGB share price may bottom once its operation has ceased to bleed. Today MEGB is trading at 51 sen or 53% of NTA.


Chart 2: SCB's last 15 yearly results 

Note: I can't find the chart for SCB. The data on share prices is available at KL Data (here).

Technical Outlook

MEGB's share price is still in a downtrend, albeit dropping at a much gradual rate.


Chart 3: MEGB's weekly chart as at Aug 19, 2013  (Source: Quickcharts)

Conclusion

Due to poor market positioning and tough operating environment, MEGB's poor financial performance is expected to persist for sometime. As such, MEGB's existing rating of AVOID is maintained.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, MEGB.