SEG International’s (SEGi) 1HFY12 core earnings of RM36.3m were in line our expectations but below consensus estimates at 46.1% and 37.3% of the full-year projections respectively. We continue to like SEGi as the group looks to venture into pre-school, primary as well as secondary private education to propel earnings growth going forward. Maintain BUY, at a revised FV of RM2.52, as we roll forward our valuation to FY13, based on an unchanged 18x PER.
Within expectations. SEGi’s 1HFY12 revenue came in 15.8% higher y-o-y at RM158.0m due to higher student enrolment, which we estimate at 29k as of June 2012. EBIT margin, however, dipped 60bps to 32.9% owing to higher distribution expenses, which jumped 17.5% y-o-y to RM16.0m during the period under review. All in, the group’s 1HFY12 core earnings improved 15.9% y-o-y to RM42.0m.
Flattish q-o-q on seasonality. On a quarterly basis, 2QFY12 revenue inched up by 3.0% q-o-q to RM80.2m. However, the marginal sequential growth went on reverse gear as EBIT fell 8.2% q-o-q to RM24.9m, with the corresponding margin shrinking by 200bps to 31.0% as cost of services climbed 14.1% q-o-q, primarily due to higher distribution expenses. All in, the 2QFY11 core net profit dropped 8.1% q-o-q at RM20.1m.
Retaining forecasts. No changes to our forecasts at this juncture in anticipation of a seasonally stronger 2HFY12. We continue to forecast core earnings of RM91.1m for FY12 and RM104.9m for FY13. We are also introducing our FY14 projected net profit of RM114.2m, which implies a decent growth of 8.9% y-o-y over our FY13 estimate, as well as a dividend yield of 3.8% p.a.
New earnings stream by 2015. Over the medium term, the group’s venture into international schools following the proposed acquisition of a 12-acre land in Bandar Setia Alam from SP Setia for RM52.3m would help the group to penetrate into the fast-growing and better-yielding private pre-school, primary and secondary education segment. We understand that the tuition fee at the proposed international school would range from RM40k-RM50k p.a, and is likely to welcome its first intake of students sometime early 2015. The capex allocated has yet to be determined, but we believe it would likely be to the tune of RM50m-RM70m, to accommodate 4k-5k students.
BUY. Rolling forward our valuation to FY13, our FV is now RM2.52, based on an unchanged 18x PER. SEGi continues to be our top education pick for its large enrolment base, diversified course offerings and asset-light model. Maintain BUY.
Source: OSK
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