Masterskill ('MEGB')- a true master or...

Masterskill is a new IPO which is due to be listed on the exchange on May 18. The IPO- Malaysia’s biggest initial public offering for 2010- raised RM771 million.

Masterskill is involved in the provision of medical nursing training services through Masterskill University College of Health Sciences, which is Malaysia's largest group of nursing colleges.

What I find amazing about Masterskill is its fantastic net profit margin. From Table 1 below, you will see that its net profit after tax is a whopping 35-36% of its revenue for FY2008 & FY2009. At the same periods, its pre-tax profit is about 39-41% of revenue.


Table: Masterskill's Financial Results for FY2007-2009

The extremely high profit margin is way above the profit margin of three of the education groups listed in Malaysia- HELP, SEG & Stamford College.


Table 2: The last 2 years' results for Masterskill, HELP, SEG & Stamford

There are two ways that this is possible, either Masterskill charges a higher fee than the other colleges or it has a lower level of expenses than the other colleges (eg. lower lecturers' pay, lower facilities expenses, etc). Why would the students pay more to study at Masterskill? Could it be that they can easily get employment in government hospitals? Or, is it because the students can have easy access to government loans to finance their study? Why would the students choose a college where the lecturers may not be the best (if you pay less, you would not attract the best) & the facilities are lacking? I still remember reading about the grouses of the medical students in one of the cheaper local colleges, which include the very limited number of cadavers for their study, only one for a class of 40. If you cut corner deep enough, you can save a lot of expenses & make a huge profit. Would you produce good nurses? Would the employers (private & government hospitals) accept such graduates?

We do not know what is the reason for Masterskill's exceptional high profit level. For all we know, the competitors are grossly incompetent and Masterskill is a truly exceptional company. However, I have been around long enough to know that such truly great companies are very rare indeed.