SEG  International’s (SEGi) 1HFY14 core earnings of MYR14.0m  were below  expectations.  We  attribute  this  to  continued  weakness  in  its enrolments  amid  escalating  competition  within  Malaysia’s  tertiary education  universe.  As  the  company  lacks  re-rating  catalysts  over  the near  term  and  due  to  resources  reallocation,  we  are  taking  the opportunity to cease coverage on the stock.  

Below  expectations.  SEGi  recorded  1HFY14  revenue  of  MYR123.3m (+8.4%  y-o-y)  on  higher  student  enrolments  this  year,  as  its  1HFY13 numbers  were  hit  by  a  high  number  of  graduating  students  from  its nursing  programme.  By  the  same  token,  profitability  too  improved  with an  EBIT  margin  of  13.6%  vis-à-vis  3.0%  in  1HFY13.  Nonetheless,  its 1HFY14  core  earnings  of  MYR14.0m  still  fell  short  of  both  consensus and  our  expectations  at  41.2%  and  39.3%,  as  the  improvement  in 
operations came in weaker than expected. We attribute this to continued weakness  in  its  enrolments  amid  escalating  competition  within Malaysia’s tertiary education universe.  For  comparison  purposes,  we estimate that its student base fell to an estimated 24k-25k currently from a high of 29k-31k in June 2012.  

Quarterly  review.  On  a  quarterly  basis,  its  2QFY14  revenue  of MYR61.8m and core earnings of MYR6.7m marked y-o-y improvements, but  profitability  dipped  q-o-q  due  to  increased  opex.  No  dividends  were declared during the quarter.  

Ceasing coverage. As SEGi lacks re-rating catalysts over the near term and due to resources reallocation, we are taking the opportunity to cease coverage on the stock. Our previous recommendation was a SELL with a FV  of  MYR0.64,  premised  on  a  14x  FY14  P/E.  We  note  that  SEGi  is currently  trading  at  a  relatively  unattractive  26.6x  FY15  P/E  and  2.9x P/BV.

Financial Exhibits

Financial Exhibits

SWOT Analysis

Company Profile

SEG International is one of the largest private tertiary education providers in Malaysia.

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Source: RHB