SEGi’s  1HFY13  net  profit  of  MYR18.5m  was  below  expectations  reaching  only  35.9%  of  our  previous  2013  estimates  and  44.8%  of consensus  forecasts.  2QFY13  earnings  were  weaker-than-expected, mainly  due  to  a  slowdown  in  student  enrolment.  Maintain  SELL,  with our FV revised lower to MYR0.83, pegged to a 14x FY14 P/E. 
 
- Below  expectations.  SEGi’s 1HFY13 revenue dropped  28.3%  y-o-y  to MYR113.7m  while  its  core  earnings  plunged  56.0%  to  MYR18.5m, mainly  attributed  to  lower  student  enrolment.  Meanwhile,  its  2QFY13 revenue inched up 3.7% q-o-q but slipped 27.8% y-o-y to MYR57.9m as more  students  graduated  during  the  quarter. SEGi’s 2QFY13 net  profit surged  more  than  100%  q-o-q  to  MYR17.5m  helped  by  a  MYR15.8m  gain from the land disposal in Kota Damansara, but dipped 13.1% y-o-y due to delays in foreign student visa approval.

- Cutting estimates. In view of the disappointing earnings for the quarter under review, we cut our core earnings  estimates further by 30.6% and 14.8% for FY13 and FY14 respectively to incorporate even lower student growth  and  higher  opex  assumptions.  We  are  now  forecasting  for  core earnings of MYR35.8m for FY13 and MYR44.6m for FY14.   

- Foreign  student  woes.  Recall  that  the  Ministry  of  Higher  Education (MoHE)  has  established  a  new  agency,  Education  Malaysia  Global Services (EMGS), to streamline the processing of all foreign student visa applications in the country within 14 days after submission. However, our channel checks indicate that student enrolment has slowed down due to delays  in  foreign  student  visa  approval.  As  foreign  students  make  up 15%,  or  4k  of SEGi’s 27k student  base,  we  remain  cautious  in  view  of the potential downside risks to SEGi’s near-term earnings.  

- Maintain SELL. All in, we maintain our SELL call, with our FV lowered to MYR0.83 (from MYR0.96), based on  a 14x FY14 P/E.  This is at a 50% discount to SEGi’s average P/E of 30x, noting that its earnings base has shrunk by more than half from FY11 and FY12.  

Source: RHB