Monday, May 20, 2013

SEG- a short respite?

Result Update

For QE31/3/2013, SEG reported a net profit of RM1.2 million- a turnaround from a net loss of RM2.8 million for QE31/12/2012 but nevertheless a 95%-drop from a net profit of RM27 million a year ago. Revenue increased by 6% q-o-q but dropped 28% y-o-y to RM56 million.

The turnaround in the bottom-line was a result of improved recruitment which led to increased revenue. Nevertheless, this is a far cry from the days of consistent growth which made SEG a darling among the mid-cap stocks on our exchange.

Table: SEG's last 8 quarterly results

Chart 1: SEG's last 20 quarterly results


SEG (closed at RM1.63 last Friday) is now trading at a PE of 25 times (based on last 4 quarters' EPS of 6.6 sen). SEG is clearly overvalued and this overvaluation can be rectified in one of two ways- a rise in earning or a drop in share price. Only time will tell which scenario will pan out.

Technical Outlook

SEG is now resting at its support at RM1.60-1.65. A downside breakout of that suppotr would send the stock to the next horizontal support at RM1.25 & then at the psychological RM1.00 mark. Its warrant is similarly hanging onto its support at RM1.08. Its next support would be the psychological RM1.00 amrk & then the horizontal line at RM0.80.

Chart 2: SEG's weekly chart as at May 17, 2013 (Source: quickcharts)

Chart 3: SEG-WA's weekly chart as at May 17, 2013 (Source: quickcharts)


Despite the improved financial performance, SEG is still not out of the wood. Its earning needs to bound back strongly or else the share price would have to adjust lower. As such, SEG is rated as REDUCE or AVOID for now.

In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, SEG.


Big Sea said...

Commercialized Education Institution starts to advertise aggressively on Newspaper as well as TV. This is abnormal. Could be a clear sign that oversupply situation is getting worse.

The Total Available Market to the whole industry will not change much just by advertising, a lesson we can learn from the Tobacco company. Advertising increases your business at the expense of your competitors. Soon your competitors will response and the situation will be back to square one.

Given the quality of our Private Institution and the oversupply situation, the whole industry should be avoided.

Alex Lu said...

Hi Big Sea,

Thank you for your insight. I always believe that industrial players would suddenly find themselves in a situation where they is abnormal profit due to many factors. Everyone would expand until the industry reach a saturation point where additional capacity would lead to diminishing return.

The question to ask is why do the industrial players choose to grow across the tipping point. Because everyone wants to be the market leader or at least the top 5 or 10 or 20 players that would eventually weather the industrial consolidation.

SEG may be paying the price for achieving that growth to be among the top players in the educational field. As investors, we must consider our position: Do I want to be stuck in SEG for the next few quarters of substandard earning? Can my money be better deployed? The answer would likely be YES. With that, the share price of SEG would remain depressed.