Period  3Q14/9M14

Actual vs. Expectations Below expectation. The group reported a net profit (NP) of RM4.7m (-24% YoY; -30% QoQ) in 3Q14, bringing its 9M14 NP to RM18.7m (-24% YoY) which made up only 61% of our full-year NP forecast. The key culprits were mainly due to: (i) the lower revenue recorded as there was only one intake in this quarter compared to two intakes in the previous quarter, and (ii) higher-than expected fixed cost and administrative expenses.

Dividends  No dividend was declared during the quarter as expected.

Key Results Highlights

 YoY, the group’s 9M14 revenue of RM183.3m improved by 5% due to the higher number of student enrolments. Its core PBT, meanwhile, rose by 98% (after stripping-off a one-off RM15.8m gain from the disposal of a piece of land at Kota Damansara in 9M13), mainly driven by: (i) lower distribution cost (where the group spent more in advertising to recoup

higher number of graduating nursing students in 9M13) and (ii) higher other income (which we believe was mainly driven by higher hostel rental amid higher number of student enrolments).

 QoQ, SEG’s revenue dipped by 3% to RM59.9m, while EBIT declined to RM6.1m (-25%). The drop was mainly due to: (i) lower enrolment numbers as there was only one intake during the quarter as compared to two intakes last quarter, as well as (ii) the higher fixed cost incurred for the ongoing operations. The lower EBIT coupled with higher taxation rate led the group’s core

NP to weaken 30% to RM4.7m (2Q14: RM6.7m).

Outlook  Moving into FY15, management intends to attract more foreign students through increasing its presence in the international scene by partnering with overseas education agencies. Meanwhile, we also understand that SEG intends to expand their courses offered in their online programs (PACE program) to widen its revenue stream.

 The management is also planning to raise tuition fees in selective programmes, of c.10% (first time since 2012) to mitigate the upcoming GST impact. The hike is expected to more than offset the GST impact based on our preliminary analysis. Having said that, the actual GST impact is still vague at this juncture, given that detailed guidelines (to the education sector) have yet to be unveiled.

Change to Forecasts Post-results, we have lowered our FY14-FY15E NPs by 19%-30% to RM24.9m and RM29.1m respectively, after: (i) lowering the average revenue per student to RM18.0k (from RM18.4k previously) and (ii) raising the administrative and marketing expenses in view of the group’s aggressive market strategies.

Rating Maintain UNDERPERFORM

Valuation  We have lowered our SEG TP to RM0.85 from RM1.21 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  Lower-than-expected foreign student enrolment.

 Higher operating cost.

Source: Kenanga