Eduspec banks on new tech

  • Business
  • Saturday, 09 Jul 2016

Lim: ‘The STEM CS programme is new to the market and so we need to introduce it. For that to happen we need to invest heavily in promotions.’

Ace Market firm spends big for exclusive rights to Carnegie Mellon University’s STEM CS

EDUSPEC HOLDINGS BHD, whose business is to deliver education technology solutions to schools, is betting on a new teaching methodology called STEM CS, which was developed by US-based Carnegie Mellon University.

Eduspec, an Ace Market-listed firm, which has been providing educational technology solutions for schools, is spending more than RM100mil for licensing fees that will last until 2019.

The agreement gives Eduspec the exclusive rights to implement the STEM CS teaching methodology not just in Malaysia but also in the Asian region, including India, China and Korea, which are expected to be huge growth markets.

STEM CS stands for Science, Technology, Engineering, Mathematics and Computer Science, which was developed by iCarnegie Global Learning and Robomatter, both of which are subsidiaries of the US-based Carnegie Mellon University.

“The STEM CS programme is new to the market and so we need to introduce it. For that to happen we need to invest heavily in promotions,” says Eduspec chief executive officer Lim Een Hong.

To support its investment in deploying the STEM CS programme, Eduspec has had already done one share placment and is in the process of carrying out one more such exercise. Its cash pile is also decreasing – dropping to RM3.07mil as at March 31, 2016, compared with RM10.4mil as at Dec 31, 2015. It has borrowings of RM14.5mil.

Eduspec first signed a five-year agreement with iCarnegie back in June 2014 to distribute the STEM CS programme in Malaysia, Singapore, Indonesia, Vietnam, Thailand, Myanmar and the Philippines. Eduspec had to payUS$21mil (RM83.74mil) for those rights, but the payments are to be made in stages.

For 2015 and 2016, Eduspec will be paying US$4.75mil (about RM19mil), and hence it has a balance of RM64.74mil left to be paid.

Following that partnership, Eduspec completed a private placement exercise, raising RM24.5mil by issuing 76.6 million new shares on March 20, 2015. The company recently announced a new placement exercise, of which Lim expects to raise another RM17mil.

These proceeds would be used mainly for the development of the STEM CS programme.

Lim says there are about 20 schools which have integrated the STEM CS programme into their curriculum and that Tenby International School is one of its early clients for this product.

“The education sector has a gestation period.

“We think that the wave to adopt the STEM CS programme in schools will be stronger in two years,” he says.

“We are hoping to grow our topline by 30% this year and that will mainly come from the STEM CS programme,” Lim adds.

On top of the agreement with iCarnegie to distribute the STEM CS programme in Asean, Eduspec had on June 30 announced that it had secured an extended distribution licence to cover China, Hong Kong, Taiwan, South Korea and India for an additional fee of US$6.5mil (RM25.9mil).

This means that in total, Eduspec will be spending RM109.5mil on STEM CS programme licensing for the period until 2019.

That is big amount of money, considering that it amounts to almost half of Eduspec’s market capitalisation size of RM213mil.

“We have been building our capacity for the past two years.

“We have the infrastructure in place and will soon go into China and India, which is the next growth area for us,” Lim says.

Eduspec’s share price has been on a declining trend since it reached its all time high at 42 sen a share on Apr 16, 2015.

The share’s current trade at 25.5 sen a piece, which is at almost 20 times its historical earnings.

Tapping into existing customers

Lim says Eduspec existing clients include 475 schools in Malaysia, and about 100 schools in Indonesia providing consultation for schools on educational technology includes helping schools to install IT systems, software solutions, e-content and manage the schools’ IT labs.

“We are approaching our existing to clients for the STEM CS programme,” he says.

“We want to make sure that the programmes are well-implemented, so we have been working closely with the teachers,” he adds.

Notably, Malaysia’s National Education Blueprint 2013-2025 has laid out a plan to promote and strengthen STEM education in schools in order to boost the number of students that pursue related fields to 60% from 37% in 2012.

Aside from Malaysia and Indonesia, Eduspec already has a presence in Vietnam, the Philippines and Singapore. The company recently made its foray into Thailand through a joint venture agreement.

Eduspec’s quarterly earnings had been lumpy for the past five year because it does not receive fees from schools as they enter the year-end break.

For the second quarter ended March 31, 2016, the company posted a net loss of RM1.5mil from RM2.3mil a year ago on the back of higher revenue of RM14.1mil from RM12.7mil previously.

“We hope that our expansion into the overseas market would provide a sustainable growth in our earnings,” Lim says.

On annual basis, the company’s gross profit has grown at a compounded annual growth rate of 28% since 2011. It also churned earnings before interest, tax, depreciation and amortisation (EBITDA) of RM12mil to RM13mil annually since 2014.

“Currently, the average contract per school per year is about RM100,000 and we a garnered net margin of about 12%-13%,” he says, excluding the STEM CS programme.

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