SEG International - OUTPERFORM: GO on the cards?

It was reported that a General Offer (GO) for SEGI may happen as early as the end of next week. While GO pricing is unclear yet, it was reported that the GO price could be close to RM1.71/share. However, this price would only represent 10.4x and 9.0x of our estimated FY12 and FY13 EPS respectively. Hence, a higher GO price is likely needed to entice the minority shareholders. In our view, the Offer Price should be closer to our valuation of RM2.41 or at least matching the consensus target price of RM2.23. We believe that the GO for SEGI could trigger a rerating of the education sector. As for now, we see RM1.71 as a floor price and reiterate our OUTPERFORM call. Out Target Price is maintained at RM2.41, representing 14.6x and 12.8x to our estimated FY12 and FY13 EPS respectively.

The GO news.  It was reported that a GO may be announced for SEGI as early as the end of next week should issues between the interested stakeholders and Navis Capital Partners Ltd be ironed out.  

Recall that  Navis, a private equity firm, is now the second largest shareholder after having acquired a 27.84% stake, equivalent to 114.8m shares, at RM1.71 per share last Thursday. This level of shareholding is still lower than the 33% level that would trigger a Mandatory General Offer.  As such, Navis needs to join force with other parties. It was also reported that Navis could rope in SEGi’s Group Managing Director – Datuk  Seri Clement Hii, the Employees Provident Fund (EPF) or another government-linked investment company (GLIC) as joint offerors in the GO.  According to Bloomberg data, SEGi’s Group Managing Director -  Datuk Seri Clement Hii – remains as SEGi's largest shareholder with a 28.4% stake but if warrants were included, his stake on a fullydiluted basis would increase to >30%-level. 

What’s on the table?  According to The Star, the offer price could be close to Navis’ acquisition price of RM1.71/share, representing 10.4x and 9.0x to our estimated FY12 and FY13 EPS respectively. However, we believe this price level may not be attractive enough to entice other shareholders. In our view, the Offer Price should be closer to our valuation of RM2.41 or at least matching the consensus target price of RM2.23. 

Impact to the industry. Navis' acquisition of SEGI comes at the right timing where there could be a major consolidation in the local education industry. It was reported that Ekuiti Nasional Bhd’s (Ekuinas) Chief Executive Officer – Datuk Abdul Rahman as saying that education was one of the target industries for the Governmentlinked private equity fund. Apart from having acquired a 90% stake in Cosmopoint S/B, which owns and operates KL Metropolitan University College and Cosmopoint International College of Technology, Ekuinas is also said to be eyeing Masterskill Education Group Bhd (Masterskill) and HELP International Corp Bhd (HELP). As such, should the GO for SEGI materialise at an attractive GO price, this should act as a re-rating catalyst to other listed education players such as Masterskill and HELP.

Source: Kenanga