SEG International - OUTPERFORM - 27 June 2012

News   SEG has proposed to acquire 12 acres or 522,720 sq ft of vacant freehold commercial development land located within Mukim of Bukit Raja, Selangor from Bandar Setia Alam S/B,  a wholly-owned subsidiary of S P Setia Bhd, for a total purchase consideration of RM52.2m or RM100.0 per square foot. The amount represents a 4.77% discount to the current market value as appraised by HB Malaysia, an independent valuer. 

 The rationale for the land acquisition is to build  an international school given its strategic geographical location. 

 The acquisition will be funded through internally generated funds and/or bank borrowings, but the final financing structure has yet to be finalised at this juncture.  

 The Proposed Acquisition is expected to be completed within the fourth quarter of 2012 and theschool is expected to commence operation at the end of 2015 upon completion.

 Management is targeting the new facilities to be able to accommodate at least 3,000 students.

  

Comments   We are positive on the group’s future plan here which is targeted to penetrate into the international school category. This, in our view, could further enhance the group’s reputation as well as getting it a new income source in the future.  

 We have yet to factor in the proposed land acquisition and any potential new revenue above from the proposed international school into our financial model at this juncture. 

 As of end-March 2012, SEG net cash position stood at RM33.7m.

  

Outlook  The outlook for SEG remains positive supported 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, which enjoy higher margins compared to its other programmes.

 We believe SEG is still able to maintain its 50% dividend payout policy with this land acquisition.

  

Forecast  Our FY12 and FY13 forecasts remain unchanged at RM104.7m and RM127.0m respectively.

  

Rating Maintain OUTPERFORM pending further information from the management regarding the land acquisition.

Valuation   Maintaining our SEG’s fair value of RM2.19 based on a targeted FY12 PER of 12.5x (+1SD).

  

Risks  A slowdown in student enrolments.  

Source: Kenanga