This article first appeared in The Edge Malaysia Weekly, on March 7 - 13, 2016.
EDUSPEC Holdings Bhd started the current financial year ending Sept 30, 2016 (FY2016), on a low note — it announced a wider net loss of RM4.16 million in the first quarter ended Dec 31, 2015 (1QFY2016). This is compared with the RM3.38 million loss seen in the previous corresponding period.
However, its CEO Lim Een Hong is not too worried about the financial results. He remains confident of Eduspec’s growth prospects, which he believes will get better in the coming years when science, technology, engineering and mathematics (STEM) education takes the world by storm.
Lim says the first financial quarter is usually a low season for the company, mainly because of the school holidays — no classes are conducted in November and December. He also points out that the company has been able to maintain its double-digit growth each year.
In FY2015, Eduspec achieved revenue of RM76 million, a 30% increase from RM58.42 million the year before. Net profit jumped 42% to RM9.79 million.
The niche education service provider’s earnings per share (EPS) has grown by leaps and bounds in a short span of three years. In FY2013, its EPS was a mere 0.27 sen; this grew close to four times to 0.99 sen in FY2014 and increased to 1.21 sen in FY2015.
Lim is targeting a 30% annual revenue growth for the company from its existing products and long-term contracts with schools in Asean, including some 600 primary schools in Malaysia.
“But the 30% revenue growth does not take into account the STEM products. We are engaging with the governments in the region to accept this technology,” he says. “STEM is our next growth catalyst — it is expected to have a big impact on our revenue going forward.”
Besides expanding geographically, Lim is placing an emphasis on R&D to cultivate new growth catalysts. STEM is one example.
Eduspec has spent US$21 million (RM86.3 million) to source the STEM programme from the US. It is the exclusive distributor of the programme in Asean.
STEM education is designed to revolutionise the teaching of subjects such as mathematics and science by incorporating technology and engineering into the regular curriculum and creating a “meta-discipline”.
According to Lim, many schools in Malaysia have adopted the STEM programme and he expects more schools to migrate to STEM education.
On Feb 18, the group — through its Singapore associate CM Asia Learning Pte Ltd — signed a memorandum of understanding with Tunku Abdul Rahman University College to collaborate on the validation of results of assessed works in schools and to offer certification to students and teachers. Under the MoU, Eduspec will distribute the STEM programme to the whole region and targets to capture a bigger market share for STEM education.
Currently, the company derives half of its revenue from abroad, but this could grow given the larger population in neighbouring countries.
Eduspec has been in constant dialogue with the governments of the region. According to Lim, it is in negotiations with the Indonesian government to help put the STEM programme in the country’s public vocational schools.
He sees Indonesia and Vietnam as two countries that can provide the company with greater earnings and growth potential.
For Lim, Indonesia offers more opportunities because of its larger population, affordable education and the decentralisation of its education system.
Vietnam’s government does not have a large education budget and there are fewer international schools there, he says. However, the decentralisation of the country’s education system will be a future trend and that augurs well for Eduspec, he adds.
The company’s approach is to sell its education programmes directly to schools. “We don’t sell our products to the governments but we are always in dialogue with them so that they are receptive to the programmes,” says Lim.
Eduspec currently has a presence in the Philippines, Indonesia, Singapore and Vietnam. This year, it plans to expand to Thailand.
Meanwhile, Lim intends to spend up to 10% of the group’s revenue on R&D. He does not rule out the possibility of raising funds in the future to finance these activities.
Eduspec spent RM1.9 million last year on R&D, which is about 2% of its revenue.
Despite having achieved steady growth in net profit and revenue over the years, Lim has not adopted any dividend policy as he says the group is still growing.
“We have decided that even for this year, we are not declaring a dividend. We have not reached a stage where we think we want to split our profit with shareholders,” Lim says, adding that the group still needs more money to grow its business.
Its aggressive expansion plans notwithstanding, Eduspec does not appear to be on the radar screen of investors as it lacks immediate returns. Its share price fell to
29.5 sen last Thursday from a 52-week high of 43 sen in April last year.
Having said that, the counter did catch the attention of fund managers such as Areca Capital Sdn Bhd, which held a 9.3% stake in Eduspec as at Feb 3.
The asset management firm’s CEO, Wong Teck Meng, tells The Edge that Eduspec is a future gem with tremendous growth potential, as e-learning has become popular in Asean.
“[The stock] is for medium to long-term holding. Although it is not a dividend play, I believe in its growth story,” he says.
According to Wong, Eduspec’s fundamentals are strong as its number of students has been increasing and its EPS has continued to improve.
Eduspec is currently trading at a price-earnings ratio of about 26 times — this could be considered high to some. Wong says it is difficult to justify the company’s valuation as it is a regional player and there are not many direct competitors.
“The development of the company is still at an early stage, but in the long run — 5 to 10 years — the education sector will be a key growth area for Asians. Demand for education is strong,” Wong says.
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