News  Recent press recently highlighted that the Education Ministry announced that high school leavers are no longer able to use their forecast Sijil Pelajaran Malaysia (SPM) results as admission qualification for pre-university or foundation programmes from January 2015 onwards.

Comments  We are neutral on this news as the issue is not new which has been highlighted previously.

According to the management’s understanding on the circular, there is no clear clarification on whether the forecast results are prohibited from being used for confirmed admission or conditional admission as well.

 Management does not expect any impact to its earnings for now in view of the nebulous policy, which takes time for the authority to iron out. For the time being, SEG will continue to allow students to use SPM forecast results as a medium of admission on a conditional basis with the SPM certification used for final assessment.

 Having said that, should the rule is enforced at the later stage, we believe the earnings impact to SEG is likely to be minimal, as its core classes generally begin after the confirmation of admission following the actual SPM results release.

Outlook  We believe that SEG’s outlook remains intact, as the Group is in the midst of expanding its higher-margin programmes, particularly their new online programs segment. Beside, SEG is also increasing its foreign student base by working with several overseas education agencies.

Forecast  We are keeping our FY14-FY15 earnings forecast unchanged for now, pending management’s further clarification of the circular with the higher authorities. .

Rating Maintain UNDERPERFORM

Valuation  Maintain TP at RM1.21 based on an unchanged targeted FY15E PER of 22.0x, to align with its peer, HELP International’s privatisation forward PER of 21.7x.

Risks to Our Call Ruling does prohibit students from using forecast results for conditional admission.

Source: Kenanga