Warrants Update: New training jobs could buoy SMRT-WA

-A +A

SHARES in ACE Market-listed SMRT Holdings Bhd have appreciated heavily this year, up 286% year-to-date to close at 85 sen last Thursday.

Investors who bought the stock in mid-October, when it dipped as much as 54% from its 52-week high of 91 sen to 53.5 sen due to declines in the broader market, would today be sitting on sizeable gains.

Its warrants, SMRT-WA, too had gained alongside its mother share, up some 545% year-to-date to close at 64.5 sen.

Financials for the education stock, bound for transfer to the Main Market, are up to mark. It posted RM8.2 million in net profit for the financial year ended Dec 31, 2013 (FY2013), RM8.5 million for FY2012 and RM8.3 million for FY2011.

“We think that SMRT could register a three-year revenue and earnings per share  compound annual growth rate of 35% to 50% in FY2013 to FY2016,” CIMB Research analyst Terence Wong said in an Oct 30 unrated note.


Wong’s valuations of RM1.04 to RM1.38 for SMRT imply some 22% to 62% upside potential — something that may also boost SMRT-WA, which was trading at a 2.9% discount to its mother share as at last Thursday.

Like the underlying stock, the warrants tumbled 51% from its 52-week high of 72 sen in August to 35 sen on Oct 16.

If SMRT gains 22.35% to reach the lower end of CIMB Research’s valuation of RM1.04, SMRT-WA should, in theory, gain 33.3% to 86 sen, assuming zero premiums to the underlying stock.

Company-issued SMRT-WA has a strike price of 18 sen and conversion ratio of one-to-one. With nearly three years before it matures on Aug 1, 2017, there is ample time for warrant holders to ride on SMRT’s expected growth trajectory.

In August, SMRT secured a contract from the Ministry of Education to train and upskill 1,000 English teachers. This follows the three-year contract worth RM30 million per annum that SMRT attained in 2010 for the recruitment and management of English Language Training (ELT) consultants to train over 2,000 teachers in 600 schools.

CIMB Research reckons there is tremendous growth potential in this area with a second ELT programme launched in 2013. “SMRT is in the running for the RM90 million contract that will be awarded in 2015,” said Wong.

The company hopes to complete the acquisition of the remaining 30% it does not own in Cyberjaya University College of Medical Sciences by December 2014 for RM10 million. Last year, Cyberjaya University College made RM280,000 net profit, a turnaround from net losses of RM4.9 million and RM1.2 million in FY2011 and FY2012 respectively.

This article first appeared in The Edge Malaysia Weekly, on November 10-16, 2014.