Stocks With Momentum: Eduspec Holdings

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Eduspec Holdings Bhd
THE share price of Eduspec breached its 52-week high yesterday with over ten-fold rise in trading volume to 20 million shares. At 30 sen, the stock is selling at a very high price-to-book ratio of 4 times and trailing P/E ratio of 136 times, considering its below-than-market average ROE of 6.5% in FY Sept 2013.

Established since 1984, Eduspec provides IT literacy materials for primary and secondary school. The company’s products and services include IT learning labs, language labs, digital school system, school management system, e-learning and learning management system. Eduspec invests heavily in R&D, with capitalisation of R&D expenditure of RM2.8 million (8% of sales) in FY2013.

From FY2010 to FY2013, sales increased from RM13.6 million to RM34.3 million. However, pre-tax profit declined from RM2.3 million in FY2010 to RM0.7 million in FY2012 before recovering to RM1.1 million a year later. Net profit margin was volatile, ranging between 1.2% and 7.8% during the same period.

In December 2013, Eduspec completed a corporate exercise to raise RM35.5 million from a private placement and rights issue. Approximately 50% of the fund was allocated for expansion, 19% for R&D expenditure and 29% for working capital.

As a result of the fundraising, the company turned net cash with RM24.7 million at end-June 2Q14, compared to a net debt of RM1.4 million at end-FY2013.

On July 17, 2014, Eduspec entered into an agreement with iCarnegie Global Learning LLC to be an exclusive distributor of the latter’s products in Malaysia, Singapore, Indonesia, Vietnam, Thailand, Myanmar and Philippines, as well as the right to appoint resellers to distribute iCarnegie products. Eduspec is required to pay a minimum annual aggregate fee to iCarnegie for the rights granted. Total minimum aggregate fee is USD21 million over five years.

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This article first appeared in The Edge Financial Daily, on December 1, 2014.