OSK Ventures International Bhd (OSKVI) is teaming up with HELP Education Group to invest in the private early education sector, sources say.

“This is OSK Ventures’ first foray into the education sector, which it believes has the potential to generate sustainable income. Partnering an experienced player in this field also adds confidence to the venture,” says a source familiar with the matter.

According to the source, OSKVI and HELP will open their first preschool, The Little Tree House Kindergarten, in the newly opened Atria shopping mall in Damansara Jaya.

“The preschool will provide multilingual (English, Mandarin and Bahasa Malaysia) education to four-to six-year-old children and the fees will be competitive, to attract middle-income parents who want to give their children access to the British and Malaysian curriculums with a blend of Montessori.

“This is just the beginning … the group (OSKVI) plans to invest more in the education sector,” adds the source.

While OSKVI is known for its investments in the technology and communications sector, HELP has been in the education industry for decades.

Apart from this new offering, HELP has five main institutions — HELP University; HELP Academy; HELP College of Arts and Technology; College of Automotive Technology Management, a joint venture with Naza Group of Companies; and HELP International School, where the group offers primary and secondary education based on the UK syllabus leading up to the Cambridge A-levels.

OSKVI (fundamental: 1.2; valuation: 1.8) also recently partnered Cradle Fund Sdn Bhd to invest in education service provider Sync and recruitment portal MauKerja. The two local start-ups each raised about RM1 million from this.

A head of strategy with a public-listed company observes that OSKVI’s move into the education sector could be a strategy to diversify its investment portfolio while adding a predictable and steady income stream should this business grow.

“Venture funds such as OSKVI may not see predictable year-on-year earnings growth as its business model is fairly unique and is focused on investing in early-stage, high-growth-potential companies that don’t necessarily have a long track record of earnings,” he says.

“What investors should realise is that the performance of venture funds is tied to that of the companies they invest in. So, it is quite normal to expect a gestation period.

“The biggest chunk of a venture fund’s earnings is not from the revenue of the portfolio company, but rather the capital gains when it exits its investment. That is typically after 5 to 10 years,” adds the officer, who also looks into finance and investment matters.

OSKVI posted a 66.5% y-o-y decline in net profit to RM2.87 million in the first quarter ended March 31, 2015. This was attributable mainly to smaller net fair value gain arising from quoted investments and lower returns from investment securities.

In FY2014, OSKVI’s revenue more than doubled to RM102.43 million from RM45.83 million a year ago. However, the company registered a net loss of RM13.7 million due to a decline in market prices of its long-term investments.

Nevertheless, last year, OSKVI managed to exit its investment in Stone Apple Solutions Pte Ltd — one of Southeast Asia’s fastest-growing technology consulting companies — with an internal rate of return of 25%.

Despite incurring losses in 2014, OSKVI announced a dividend of two sen per share. At the stock’s close of 50.5 sen last Friday, the dividend translates into a yield of 3.96%.

Prior to the decline in market prices that affected its investments in 2014, OSKVI registered a net profit of RM14.4 million in FY2012 and its bottom line expanded 18.8% y-o-y to RM17.1 million in FY2013.

Its investee companies include Willowglen MSC Bhd (fundamental: 2.5; valuation: 1.2), Handal Resources Bhd (fundamental: 1.4; valuation: 1.7), Green Packet Bhd (fundamental: 1.1; valuation: 0.3) and mTouche Technology Bhd (fundamental: 1.35; valuation: 0).

The listed venture capital fund has also entered into a memorandum of understanding with Cradle Fund — a government agency under the Ministry of Finance — to pioneer the local equity co-investment scene with a mandate to jointly invest up to RM1 million in each selected local start-up.

As at March 31, 2015, OSKVI had net cash of RM70.59 million. This translates into a net cash per share of 36.06 sen, versus its share price of 50.5 sen or a market capitalisation of RM98.85 million. The stock is trading significantly below its net asset per share of 93 sen as at March 31.

As Malaysians become more affluent, demand for private education increases, prompting companies and investors to get a piece of the action.

Last year, Ekuiti Nasional Bhd (Ekuinas) paid RM70 million for a 70% stake in Tenby Educare Sdn Bhd, an education provider that operates five international and private schools in Setia Eco Park, Ipoh, Penang, Miri and Johor Baru.

According to analysts, the Malaysian private education industry was estimated to be worth RM7.2 billion in 2012 and is expected to grow 9% annually to more than RM14 billion by this year, driven by higher demand as a result of favourable demographics, rising income and an increasing number of foreign students.

“Even property players realise the potential of private education. Some developers build schools and universities to make their townships more attractive to buyers. Matrix [Concepts Holdings Bhd], for instance, built a school in its township and has a stake in the education provider,” says an analyst.

According to Matrix’s (fundamental: 2.6; valuation: 1.8) 2014 annual report, its Matrix Global School in Seremban, Negeri Sembilan, had 416 students as at end-March 2015. Matrix Global Schools offer private education from preschool to the secondary level. In Matrix’s latest financial statement, the education segment registered RM734,101 in revenue in its first year of operations in 2014.

In August the same year, IGB Corp Bhd (fundamental: 1.2; valuation: 2.0) launched IGB International School in Sierramas with a maiden batch of 146 students from some 30 countries.

Note: The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations. Visit www.theedgemarkets.com for more details on a company’s financial dashboard.

This article first appeared in The Edge Malaysia Weekly, on June 1 - 7, 2015.

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