EDUCATION player HELP International Corp (RM2.34) is on an aggressive expansion trail that will make it a significant regional education player. The company plans to expand its market reach and student base significantly, both locally and overseas.

This will involve expanding its local operations by adding more campuses and courses, and overseas through increasing HELP co-branded tie-ups in the next one to two years, particularly in China and the Indochina region.

Except for the new Subang 2 integrated campus, the rest of the local and overseas co-branded colleges will not require much capital investment. They will be either leased or through strategic "franchise" like tie-up arrangements.

The HELP group currently has about 12,000 in its Damansara Heights and Klang campuses. This excludes over 1,000 students studying for HELP- accredited courses overseas, in Vietnam, China and Indonesia. It aims to ultimately increase its domestic student enrolment to about 20,000 by 2018, when Subang 2 and Fraser Business Park campuses are fully operational.

The growth in student population will be from both local and overseas. On the local front, HELP is gaining increasing recognition, not just for its traditional and popular "twinning" courses, but also increasingly, its own HELP-accredited programmes and degrees issued under the "HELP University College" banner. This attests well to the HELP academic standards and branding.

Indeed, we understand that in the recent 22nd HELP convocation, some 43% of its students graduated with HELP-accredited degrees, the rest with overseas university-accredited degrees. This marks a sharp reversal from previous years, which are dominated by overseas degree holders undertaken via its "twinning" programmes with foreign universities.

The increasing popularity of HELP's own degrees has enabled the group to sustain and improve on margins, as external fees to third-party foreign universities are reduced. This emphasis on home-grown degrees has also allowed HELP to introduce more varied, innovative and unique courses (especially for Malaysians), and open up new markets and opportunities.

For example, HELP has introduced courses such as criminal forensic, psychology and animation. It will soon offer culinary courses at the Fraser Business Park campus. By comparison, most of the overseas-accredited twinning programmes, not just at HELP but also at other private colleges in Malaysia, are of the more "common" business, accounting, law or engineering variety.

Growing overseas clout
HELP's overseas ventures typically involve "twinning" like arrangements with overseas external colleges, which carry relatively low risks and entry costs, but high international visibility and earnings potential for the company. HELP provides software, syllabus, training, technical and academic support, without heavy investment in buildings or physical assets.

HELP is expanding its overseas foothold aggressively. It is in the process of setting up new affiliations with a number of colleges this year, mostly in China, which will see students there studying for HELP-accredited degrees. Some of these courses will be specially tailored for the local population, and will also cater for the increasing numbers heading to China to study or work.

The first of these new HELP co-branded affiliated colleges will be in Suzhou, China, and will be named the HELP-GEM International College in the Suzhou Industrial Park.

We understand the company has also been invited by a number of other Chinese provinces to establish affiliated colleges elsewhere. It will target so-called "second tier" Chinese cities, which have still relatively large population of six-seven million each, but lack quality international standard education services, as opposed to the large cities which are already well-served.

With these new tie-ups, HELP should see a significant increase in overseas income from FY2011 onwards. It expects to see about 500-600 new overseas-based students in FY2010 and 1,200-1,600 the following year — in addition to the current base of over 1,000 students.

The overseas expansion will also tie in nicely with the building of the Subang 2 campus. The new campus will alleviate present accommodation and space constraints at its Damansara campus, and enable HELP to achieve its plans to become a major regional education player.

The overseas focus will enable the new campus to be filled up relatively quickly once it is fully operational, when the overseas students arrive in Malaysia for their final year of studies. This would otherwise not be possible if HELP relies entirely on growth in the domestic market alone.

Double-digit growth, resilient earnings
HELP is on track for continued double-digit growth in FY2010-2011. The company's net profit has grown a compounded 24% annually over the last four years and looks set to grow 20% annually in the next two years.

The rising — and very prohibitive — cost of overseas degrees, and HELP's strong branding and academic standing will continue to increase its student base and ability to increase fees in the future, especially for twinning degrees. This underscores the resilience of its earnings, and makes it a relatively recession-proof company.

HELP has a strong business model and brand name. The strong branding has helped to expand its student population base, extend its presence overseas and increase the appeal of its own home-grown degrees, which are gaining popularity — not just locally but also abroad.

We expect net profit to rise 20% to RM18.5 million in FY10 and 21% to RM22.4 million in FY11, with earnings per share of 20.8 sen and 25.2 sen, respectively.

At RM2.34, HELP's price-to-earnings valuations are low at just 11.2 and 9.3 times for FY10-11 earnings. These valuations are very attractive for a company with strong fundamentals, balance sheet and branding, solid growth prospects and relatively resilient earnings.

As noted earlier, its latest net tangible asset of RM1.11 per share (as at Jan 2010) is also severely understated. The company's main fixed asset, the 11-storey Wisma HELP in Damansara Heights, is carried in its books at only RM32 million — or just RM119 psf for the built-up space.

If we place a conservative value of RM350 psf for Wisma HELP — still well below prices of RM520-RM700 for newer buildings in the Mont'Kiara, Bangsar and Damansara Heights areas, we would arrive at a value of RM94.2 million for the building.

Thus, the value of the building and cash would total RM181.4 million — or RM2.05 per share. This suggests a small premium of just RM26 million, or 29 sen per share, for HELP's other assets, including the underlying business, valuable franchises and strong branding built up over the past 24 years.   

Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.