For QE31/12/2012, SEG's net profit dropped 84% q-o-q or 86% y-o-y to RM2.5 million while revenue dropped 29% q-o-q or 25% y-o-y to RM53 million. The company explained that the decline was mainly due to the high number of graduating students in this quarter. It expected this to be mitigated by new recruitment drives for new students this year.
In the Star newspaper, SEG's MD Clement Hii further explained that the drop in profit was due to an escalation in costs, which, in turn, was due to the launch of new high-ticket programmes by SEGi University, such as medicine, dentistry, engineering and optometry. “These programmes require high investment cost and a longer gestation period before they can contribute profits to the group. There were also high numbers of graduating students, particularly from the healthcare faculty,” he said.
Table 1: SEG's last 8 quarterly results
Chart 1: SEG's last 19 quarterly results
Outlook for Private Tertiary Education
In an article entitled "Malaysia bans opening of new universities", Investvine reported that Higher Education Minister Datuk Seri Mohamed Khaled Nordin has announced that the government will not allow the setting up of universities, university colleges and colleges for two years effective February 1, 2013 in an effort to curb oversupply of educational institutions. Presently there are 37 private universities, 20 private university colleges, seven foreign university branch campuses and 414 private colleges in Malaysia. It reported that the minister thinks that "the number of higher institutions of learning is enough to meet demand".
In my opinion, the excessive number of institutions of higher learning is affecting their student intake. That the intake of an established institution such as SEG was also affected is a very negative sign. As such, I do not believe that the drop in the student intake as witnessed in SEG can be overcome by a simple recruitment drive. I believe all colleges & universities concerned would engage all-out drive to recruit new students and this could easily escalate into a price war that would result in lower profit margin for all.
Major Shareholders' Action
In April 2012, SEG's MD, Clement Hii & Navis Capital made a joint bid to privatize SEG at RM1.714 a share and RM1.214 a warrant. At the close of the offer in June 2012, they received acceptance for 64.33% of the outstanding shares & 63.70% of the outstanding warrants. There are no sign that these two major shareholders are selling their shares. Their combined shareholdings stood at 66.6% in January this year.
Valuation
SEG (closed at RM1.69 yesterday) is now trading at a PE of 16 times (based on last 4 quarters' EPS of 10.57 en). As such, SEG is deemed overvalued.
Technical Outlook
SEG's uptrend seems to breaking down. Interestingly, SEG may have gone to an accumulation phase in 2010 & early 2011 where the share price rose with increased volume. In later part of 2011 & 2012, there were even signs of distribution where share price declined with increased volume. After the privatization bid by Clement Hii and Navis Capital, the share price rose to the RM2.00 mark and trading volume dried up. The trading volume picked up over the past 4-5 weeks coinciding with the drop in share price.
Chart 2: SEG's weekly chart as at Mar 7, 2013 (Source: Quickcharts)
Conclusion
Based on poor financial performance, negative business outlook, unattractive valuation & potentially negative technical outlook, SEG is now rated a SELL or AVOID.
Note:
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.
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