SEG International - Below our expectation

 Period    1Q12

Actual vs.  Expectations

 The 1Q12 revenue and net profit of RM77.8m and RM21.9m were 10.0% and 19.0% below our expectations on an annualized basis and accounted for 22.7% and 22.4% of the street’s estimates respectively. However, this could be due to seasonal factors in our view which 1Q usually is the weakest.

Dividends   No dividend was announced for the quarter.

Key Result Highlights

 YoY, the 1Q12 revenue of RM77.8m increased by 14% boosted by a higher number of student enrolment from local and overseas coupled with more new courses launches from its overseas partner universities as well as SEG home-grown programmes. Net profit was up 21% YoY to RM21.9m due mainly to higher margins driven by more home-grown programmes launched during the quarter and a lower effective tax rate (19.2% vs 21.0%). 

 QoQ, the revenue and net profit improved by 10% and 23% respectively, driven mainly by higher GP margin (76.9% vs. 74.2%) and lower operating costs. Note that 4Q11 had incurred additional expenses of about RM1.0m for the upgrade of the campus building.

Outlook   Remains bright underpinned by more new programmes to be introduced within this year (20-30 programmes) particularly from an increasing number of SEG University College’s own homegrown programmes (e.g. medical sciences), which enjoy higher margins compared to other programmes. 

Forecasts   Post-results we have trimmed our FY12-FY13 revenue forecasts by 4.2%-4.4% to RM332.0-373.8m respectively after lowering the targeted students enrolment growth to a more conservative 10% YoY in FY12 and 12% YoY in FY13 (from 13% and 12% previously). 

 In tandem with the lower revenue forecast, our SEG FY12-FY13E net profits have also been cut marginally by 3.1%-3.4% to RM104.0m and RM127.0m respectively. 

Rating  Maintained OUTPERFORM but we recommend minority shareholders to reject the GO of RM1.714.

Valuation    Reducing TP to RM2.19 (from RM2.41 previously) based on a lower targeted FY12 PER of 12.5x (+1SD). The lower targeted PER is to reflect the uncertainty over the ongoing GO. We will review our TP should the GO lapse and SEG’s listing status remain unchanged.

Risks   High acceptance of the takeover offer would trigger a successful delisting.

Source: Kenanga