Turning The Corner, But No Material Pick-Up
Turning The Corner, But No Material Pick-Up
Turning The Corner, But No Material Pick-Up
Rating: 3
W166,900
072870.KS n.a. n.a.
Market data
KOSPI Market cap EV 3-mth avg daily T/O Shares outstanding Free float Major shareholder Exchange rate 1,870.44 (US$m) 936.07 (US$m; 10E) 774.97 (US$m) 2.03 (m) 6 (%) 63.2 Son, Ju Eun (19.8%) W/US$ 1,131 3M 0.9 (6.9) 6M (11.2) (20.1)
Impact
For 3Q FY10, the high-school divisions profitability deteriorated to 47.3% from 55.4% in 3Q09 due to aggressive promotional events. Even its paid education service for younger students slowed down in year-on-year sales growth due to weak seasonal demand. On the positive notes, the companys offline and younger student division improved profitability thanks to operating leverage. But, paid subscribers and ARPU continued to decline in the quarter due to fierce competition with EBSi. Megastudys CFO believes the worst for the companys core services was already behind, but year-on-year sales growth will recover gradually in 2011. He highlighted recent positive developments in the companys affiliates and their potential to contribute earnings growth from 2011. Also, he provided a rough picture for the companys China strategy focusing on middle-high school student market and even adult education services. However, he still remains cautious on meaningful earnings contribution from China in the near term. For 2011, we expect online education services to continue to drive earnings growth, although market share slippage is evident. We have revised up our EPS forecasts for FY10-12 in order to reflect improving profitability from younger student and offline service. It plans to open a big boarding school in 4Q10 and forecasts new revenues of W15bn for 2011. Management stressed MegaMD (unlisted) has shown impressive growth in revenue year to date.
Performance (%)* 1M Absolute (4.0) Relative (6.1) Source: Daiwa Note: *Relative to KOSPI
Investment indicators
2010E 2011E 2012E PER (x) 14.1 11.7 10.3 PCFR (x) 14.5 11.1 9.8 EV/EBITDA (x) 9.1 7.2 5.9 PBR (x) 3.6 2.9 2.3 Dividend yield (%) 1.4 1.4 1.4 ROE (%) 28.7 27.5 25.1 ROA (%) 24.1 23.8 22.3 Net debt equity (%) net cash net cash net cash Relative to peers Above Relative to history Below Source: Daiwa forecasts
Valuation
We maintain our 3 (Hold) rating and our six-month target price of W164,000, based on a blended-valuation approach (DCF and peer-group comparison). In our view, a bleak earnings outlook for 4Q10 and 2011 to come and intensifying competition prevent us from turning to become positive.
Fair value
Valuation (W/shr) Methodology Key assumption 163,665 DCF and peer comparision WACC of 10.8% and terminal growth rate of 3.0%, target PER 13x, target EV/EBITDA multiple 8x
1Q09 59.1 20.5 40.6 37.0 5.8 15.2 1.1 20.6 26.5 98.0 34.9
2Q09 54.5 20.6 (7.9) 32.1 4.5 16.6 1.2 19.4 42.6 (5.9) 35.7
3Q09 77.8 17.9 42.9 50.7 8.3 17.4 1.5 32.8 20.4 68.6 42.1
4Q09 46.9 11.6 (39.7) 34.9 4.1 7.0 0.9 11.9 14.2 (63.6) 25.4
1Q10 63.2 6.9 34.7 38.0 5.5 17.0 2.7 22.3 7.8 86.9 35.2
2Q10 55.0 1.0 (13.0) 32.1 3.6 16.8 2.5 19.4 0.1 (12.7) 35.3
3Q10P 76.5 (1.7) 39.0 49.9 5.3 19.2 2.1 29.7 (9.3) 52.8 38.8
Note: P provisional
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED ON THE LAST TWO PAGES OF THIS REPORT.
Company background
Megastudy offers Internet-based learning services for middle- and high-school students. It controls Korea' paid education service market with a more than a 70% market share as of December 2009. Megastudy has cumulative registered and paid users of 2.4m, and 0.8m users for its Mbest service for middle-school students.
Key ratios
Year to 31 Dec Sales YoY % EBITDA (adj.) YoY % Net profit (adj.) YoY % EPS (adj.) YoY % EBITDA margin % (adj.) EBIT margin % (adj.) Net-profit margin % (adj.) ROAE (%) ROAA (%) ROCE (%) ROIC (%) Net debt to equity (%) Effective tax rate (%) Accounts receivable (days) Payables (days) Net interest cover (x) Net dividend payout (%) 2008 2009 2010E 2011E 2012E 23.8 17.8 2.2 15.3 10.1 17.5 25.1 6.6 16.9 10.9 11.5 32.5 10.3 19.9 14.0 11.5 32.5 10.3 19.9 14.0 35.8 38.1 39.7 40.2 40.5 33.4 35.6 37.4 37.7 37.8 25.5 28.7 30.9 32.1 33.3 31.4 34.0 28.7 27.5 25.1 24.7 27.5 24.1 23.8 22.3 41.2 42.1 34.6 32.2 28.5 48.4 65.0 69.0 70.1 70.1 net cash net cash net cash net cash net cash 27.1 24.3 24.3 24.3 24.3 14.4 11.7 10.6 9.6 9.1 6.5 5.7 5.7 5.8 6.3 n.a. n.a. n.a. n.a. n.a. 12.3 21.4 19.4 16.2 14.2
Key assumptions
Year to 31 Dec Number of registered users ('000) Number of paid subscribers ('000) Online lecture revenue portion (%) 2008 2,705 478 72.1% 2009 3,265 561 74.0% 2010E 3,477 550 71.9% 2011E 3,723 577 70.4% 2012E 3,980 612 69.4%
PER bands
(W) 676,077 476,077 276,077 76,077 Oct-07 Oct-08 Oct-09 56.5x 45.5x 34.5x 23.6x 12.6x Oct-10
350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 May-10 Nov-09 Dec-09 May-09 Jun-10 Nov-08 Dec-08 Jun-09 Jan-10 Jul-09 Jul-10 Jan-09 Apr-09 Feb-10 Feb-09 Mar-09 Mar-10 Apr-10 Oct-08 Oct-09 Aug-10 Aug-09 Sep-09 Sep-10 Oct-10 205,000 211,000 266,000 290,000 265,000 164,000
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