Education move spurs interest in SMRT

Cyberjaya University College of Medical Sciences

LOW-PROFILE SMRT Holdings Bhd shot into the limelight last week after savvy investor Brahmal Vasudevan emerged as a substantial shareholder with a 6.6% block.

For most of 2013, SMRT had been trading in the 20-sen band, but on a year to date basis, its shares have shot up 120% to 48 sen, while its warrants have climbed even more by 252% to 36.5 sen.

The company though remains a small cap, with its market capitalisation at a mere RM92.3mil.

At its current price of 48.5 sen, SMRT trades at price earnings (PE) multiple of 11 times its FY2013 earnings.

Brahmal, who has a track record of discovering undervalued companies, is said to have been attracted to the education business of SMRT.

And his reasoning could be simple. Education stocks have been in vogue lately.

Last year, HELP International Corp Bhd was sold at US$111.3mil (RM359.3mil) to private equity firm Southern Capital Partners. This valued the company at a historical PE ratio of almost 30 times its FY2013 earnings and 22 times its projected 2014 earnings.

In 2012, Navis Capital Partners Ltd and SEG International Bhd managing director Tan Sri Clement Hii jointly made a general offer of SEG for RM1.19bil. This was at a PE of 14 times SEGi’s 2012 earnings.

SMRT’s education play

Since last year, SMRT’s chief executive officer Datuk R. Palan had already made known his intention to change the company’s business model to becoming a “workforce education provider” rather than a pure human resource (HR) solutions provider, which is what the company started out doing.

SMRT was listed 2006 at a price of 33 sen as a human resource development solutions provider and consulting group to build staff competencies. It owns the HRD Power software, which enables it to achieve this among other things.

The recent education push resulted in contracts from the Ministry of Education to recruit and train English language consultants for primary schools, along with the acquisition of 70% in Cyberjaya University College of Medical Sciences (CUCMS) in January this year. SMRT paid RM27.5mil for its controlling stake in the privately owned CUCMS.

Palan: ‘We aim to become a learning conglomerate.’

Palan is naturally excited about SMRT’s education push, expecting this segment to contribute some 30% fo SMRT’s topline.

“We aim to become a learning conglomerate. When we changed our name to SMRT Holdings Bhd from SMR Technologies Bhd, this was to consciously show that we were becoming a holding company, where we own stakes in various learning centres. The CUCMS was the first,” says Palan.

CUCMS already has 2,450 students enrolled, out of which 750 are in various stages of their medical degree.

Since 2010 some 415 medical students have graduated from CUCMS.

While the university had been making losses in 2011 and 2012, it had turned around last year, Palan said, adding that he expects student intake to grow by 20% every year.

The losses it made for 2011 and 2012 was mainly because it exceeded the quota on medical students and therefore had to bear the placement cost for close to 100 students

Palan says SMRT Bhd will grow CUCMS by leveraging on its existing network to attract students from the Middle East. Currently, nearly all of its students are local, but Palan is hoping to have 25% of them consisting of international students by next year. Fees for international students are around 30% higher than for locals, which should enhance the universities profit margins if international students do enrol.

Palan acknowledges that the field of medical studies is competitive, as there are 22 private universities and 11 public universities that offer medical courses. Every year, some 3,000 doctors graduate.

The question is, is there an oversupply in the making?

Palan says not. “Based on what we know, there’s still a shortage, especially if you take into account the rural parts of Malaysia, so there’s still demand.”

CUCMS has other science and medical-related courses and the plans are to expand the range of courses over time.

CUCMS now have five faculties, which comprise of medical, pharmaceutical, allied health sciences, complementary and traditional medicine as well as business and management courses.

It also offers foundation programme courses in various studies.

For its medical students, clinical and practical training is done through affiliations with several hospitals mainly under the Ministry of Health as well as accredited private specialist hospitals.

Clearly, the medical course is a key income generator. CUCMS charges RM275,000 for a five year medical degree. So far xx number of students have graduated from its medical degree programme.

Its fees for its medical degree are more competitive than other institituions such as the International Medical University whicxh charges about RM433,000 per student.

New education targets

Meanwhile, Palan says SMRT is actively looking out for acquisitions in the education space such as international schools. He also has a keen interest in venturing into the education for special needs children, a virtually untapped market.

“We are looking for quality acquisitions which we target to make over the next 1 to 2 years. We look to fill in the gaps in the market. We are searching for the right partners and the right resources,” he says.

Palan adds that SMRT’s model of being a holding company allowed it to fast track its growth, where it doesn’t necessarily need to start building a school from scratch.

He says SMRT may opt on a fundraising exercise to fund its acquisitions.

For the year ended Dec 31, 2013, SMRT recorded net profit of RM8.22mil from RM8.51mil previously. Revenue dropped to RM52.4mil from RM61.45mil in the previous period. It is in net cash position of about RM3.19mil.

The university aside, SMRT won its first major education contract in September 2010 when it secured a RM90mil job from the Education Ministry for an English language teaching project over three years.

Late last year, SMRT Holdings was granted an extension of contract by the Ministry of Education for an English Language teaching (ELT) programme in primary schools for RM60mil. The extension constitutes the recruitment and management of up to 120 ELT consultants to implement In-Service Teachers Training for English Language Teachers for a period of two years from Oct 1, 2013 to Sep 30, 2015.

On Tuesday, SMRT announced that it was undertaking a 10% private placement consisting of 29.19 million new shares. It will raise either RM5.8mil or RM8.8mil depending on a minimum or maximum scenario. The company is targeting institutions to take up the placement. As Palan says, the goal is to “institutionalise” its shareholding.

When asked whether he saw SMRT as the next SEGI University or the next Prestariang Bhd, Palan pauses, then says: “It is indeed an honour to be compared to these companies but maybe our goals and business model is slightly different. We want to have a whole range of education services. We aim to be the next learning conglomerate, with the singular focus of helping people learn and perform. There is an expression put people before profits; to me creating value will come from putting learning before profits.”

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