THE BUZZ
The Star reported that a general offer (GO) for SEGInternational (SEGi) may be announced as early as the end of next week by Navis Capital, its second largest shareholder with a26.5% stake. The latter could potentially partner with SEGi's existing singlelargest shareholder, Datuk Seri Clement Hii, who holds a 28.4% stake.
OUR TAKE
Joint offer likely. From the daily's interview with Datuk SeriClement Hii and reading between the lines, we opine that SEGi's existing majorshareholder-cum-MD is likely to partner with Navis Capital to launch a GO.Although our previous assumption that a GO might not take place at thisjuncture could turn out to be wrong, the latest speculation still matches ourview that Datuk Seri Hii is unlikely to cash out on his 28.4% stake (or 31.4%upon full conversion of his interest in warrants) in SEGi at this juncture,based on the understanding that this is his core business focus for now.
Potential pricing.To entice the minority shareholders, we believe the potential GO has to bepriced at a minimum of RM2.10/share (as opposed to Navis Capital's existingcost of RM1.71/share), which would then translate into FY12 and FY13 PERs of16.6x and 15.0x respectively. We would deem such a pricing fair considering SEGi's sizeable studentbase, which justifies the premium that it should command over itspeers. At RM2.10/share, SEGi's valuation would be at some 25% premium over HELP(NEUTRAL, FV: RM1.55) and a 80% premium over Masterskill (SELL, FV: RM0.84).
Combined 54.9% stakenow. Taking a brief look at SEGi's existing shareholding spread, the twoparties hold a combined 54.9% stake in SEGi, or an effective stake of 59.4% upon the full conversion of theirrespective warrants. To take the companyprivate, the pair would have to fork out some RM600m to buy out the minoritiesbased on RM2.10/share, which we see as not much of an issue given Navis Capital's huge assets under management ofsome USD3bn.
BUY. We expectto see more developments on this unfold in the next 2 weeks and hence, maintain our BUY call on SEGi, at anunchanged FV of RM2.17, based on 18x FY12 PER and a fully enlarged share baseof 748.4m. A re-rating on the sector as a whole is possible but not likely,given the specific factors underlying each of the education counters under our coverage.