Period  2Q14/1H14

Actual vs. Expectations The reported 1H14 PAT of RM13.9m is below expectations, accounting for only 40.4% and 40.6% of our and consensus full-year estimates, respectively. On our side, the key culprit was mainly higher-thanexpected operating costs.

Dividends  An interim single tier dividend of 5.0 sen was declared during the quarter, accounting for 53.7% of our full year forecast.

Key Results Highlights YoY, SEG’s 1H14 revenue of RM123.3m rose 8.4% due to the better student enrolments recorded and low base effect. Core net profit registered an increase of 375.8% to RM13.8m YoY after stripping-off the one-off RM15.8m gains from the disposal of a piece of land at Kota Damansara in 2Q13.

 QoQ, 2Q14 PBT was slightly down by 5.8% to RM7.6m. The decrease was mainly driven by higher operating cost as a result of new programs expansion and workforce.

Outlook  We believe that SEG’s business would be back on a steady track moving forward as we believe it has been liberalised from the EMGS ruling which had earlier hampered the Group’s effort to bring in foreign students.

 The Group is working on expanding its higher-margin programmes, particularly their new online programs segment. Besides, SEG is also increasing its presence in overseas market by working with several education agencies to increase its foreign student’s intake.

Change to Forecasts We have lowered our FY14 and FY15 net profit forecasts to RM30.9m (-10.4%) and RM41.5 (-8.2%), respectively, after imputing higher operating cost assumption.

Rating Maintain UNDERPERFORM

Valuation  We have lowered our SEG TP to RM1.21 from RM1.29 previously, based on an unchanged FY15 PER target of 22.0x. This is in line with its peer HELP International’s forward PER of 21.7x based on its privatization exercise.

Risks to Our Call Better-than-expected student enrolment.

 Higher operating cost implied.

Source: Kenanga