SEGi's  9MFY12  net  profit  of  RM57.8m  was  below  both  consensus  and  our forecasts,  making  up  only  60.8%  and  63.4%  of  both  full-year  estimates respectively.  The  3QFY12  numbers  were  weaker  than  we  previously  expected owing  to  higher  opex  following  its  status  upgrade  as  well  as  sub-par  new enrolments  during  the  period.  Downgrade  to  NEUTRAL,  with  our  FV  reverted  to RM2.09, pegged at a lower 16x FY13 PE on our revised forecasts. 
 
A  letdown  quarter.  SEGi's 9MFY12  revenue  jumped  up  11.8%  y-o-y  to  RM232.3m while core earnings were 5.9% higher at RM57.8m owing to an enlarged enrolment base of  28k  as  of  September  2012.  Nonetheless,  the  numbers  were  below  our  estimates  as its students growth slowed down during the quarter. Meanwhile, its 3QFY12 revenue of RM74.3m was 6.2% higher y-o-y but 7.4% lower q-o-q as a higher number of  students graduated during the quarter. Correspondingly, the company's core earnings came in at RM15.8m,  shedding  over  21.6%  y-o-y  and  13.8%  q-o-q  as  profits  plunged,  dragged down  by  higher  opex.  We  attribute  this  to  escalated  personnel  costs  following  its upgrade to a full-fledged university in September.     

Dividend  the  sole  consolation.  Despite  the  subpar  quarterly  performance,  the company  still  declared  a  first  interim  DPS  of  5.0  sen.  This  implies  a  payout  ratio  of 61.5% YTD.
 
Slashing  earnings  projections.  Given  the  poor  set  of  results,  we  are  revisiting  our model and slashing our net profit forecasts by 8.8% for FY12, 6.7% for FY13 and 3.5% for  FY14  by  factoring  in  higher  staffing  costs  as  well  as  lower  student  growth  over  the
next three years. We now expect SEGi's enrolment base to reach 29k by end-FY12, 32k by  end-FY13,  and  34k  by  end-FY14  vis-''-vis  our  previous  forecasts  for  30k,  33k,  and 35k respectively.
 
Downgrade  to  NEUTRAL.  Since  we  initiated  coverage  on  the  stock  in  July  2011, SEGi's share price  has  yielded  a  decent  return  of  over  20%  to-  date.  Nonetheless,  we are taking a more cautious approach at this juncture in view of the dismal results, which marks its first earnings disappointment since we initiated coverage. Hence, following our earnings  revision,  we  are  pegging  a  lower  FY13  PE  of  16x  (from  18x  previously),  with our FV settling at RM2.09. Given the limited price upside, we are downgrading our call to NEUTRAL.

Source: OSK