SEG International Bhd (Nov 10, RM1.89)
Maintain buy with revised fair value RM2.16 from RM2.23: SEG International Bhd’s (SEGi) 9MFY11 core earnings of RM36.3 million were in line with both our and consensus forecasts at 71% and 72% of the projections. A second interim gross dividend per share (DPS) of 10 sen was declared, bringing FY11 payout to 13.5 sen (excluding a special DPS of 7.3 sen paid in 1Q) which implies payout of more than 100%. We continue to like its diversified course offering as well as established balance sheet operating on an asset-light model. Hence, we maintain “buy” at revised fair value of RM2.16 based on an unchanged 18 times FY12 price-earnings ratio.
SEGi’s 9MFY11 revenue came in 29% higher year-on-year (y-o-y) at RM207.7 million due to higher student enrolment, which we believe has risen to 26,000 from 21,000. Earnings before interest and tax (Ebit) margin widened correspondingly to 33% from 25% on improved economies of scale as enrolment growth outpaced a marginal increase in operating expenditure.
Lower financing costs and a more favourable effective tax rate helped to further lift 9MFY11 core earnings to RM54.6 million, surging over 74% y-o-y. On a quarterly basis, 3QFY11 numbers were generally flattish q-o-q while on a y-o-y basis, 3QFY11 top line rose 25% to RM70 million while core earnings surged 66% to RM18.3 million on improved utilisation of its existing facilities as the group rolled out healthcare and medical courses.
Although we previously incorporated a FY11 dividend payout of only 50%, year-to-date gross DPS amounted to 13.5 sen (implying a payout ratio of more than 100%) following its second interim gross DPS of 10 sen. This high payout ratio does not entirely catch us by surprise as we have highlighted previously such a possibility given its robust balance sheet operating on an asset-light model. Given its sturdy cash pile of RM106.8 million as of 3QFY11, we believe further upside is not unlikely as capital expenditure remains largely manageable at RM15 million to RM20 million per year, hence we bump up our DPS forecast to 17.7 sen for FY11 and 9.5 sen for FY12 at a payout ratio of 180% and 80% respectively.
We make no major changes to our core assumptions for now. Our FY11 and FY12 earnings per share estimates are lowered by 3% and 1% respectively as we tweak our opex structure to account for higher overhead expenses in the belief that the group will likely recruit more lecturers for the commencement of its vocational courses catering for foreign students. In a separate announcement, SEGi mentioned that courses for an initial batch of 600 Vietnamese students will commence in late 4Q11. — OSK Research, Nov 10
This article appeared in The Edge Financial Daily, November 11, 2011.
Maintain buy with revised fair value RM2.16 from RM2.23: SEG International Bhd’s (SEGi) 9MFY11 core earnings of RM36.3 million were in line with both our and consensus forecasts at 71% and 72% of the projections. A second interim gross dividend per share (DPS) of 10 sen was declared, bringing FY11 payout to 13.5 sen (excluding a special DPS of 7.3 sen paid in 1Q) which implies payout of more than 100%. We continue to like its diversified course offering as well as established balance sheet operating on an asset-light model. Hence, we maintain “buy” at revised fair value of RM2.16 based on an unchanged 18 times FY12 price-earnings ratio.
SEGi’s 9MFY11 revenue came in 29% higher year-on-year (y-o-y) at RM207.7 million due to higher student enrolment, which we believe has risen to 26,000 from 21,000. Earnings before interest and tax (Ebit) margin widened correspondingly to 33% from 25% on improved economies of scale as enrolment growth outpaced a marginal increase in operating expenditure.
Lower financing costs and a more favourable effective tax rate helped to further lift 9MFY11 core earnings to RM54.6 million, surging over 74% y-o-y. On a quarterly basis, 3QFY11 numbers were generally flattish q-o-q while on a y-o-y basis, 3QFY11 top line rose 25% to RM70 million while core earnings surged 66% to RM18.3 million on improved utilisation of its existing facilities as the group rolled out healthcare and medical courses.
Although we previously incorporated a FY11 dividend payout of only 50%, year-to-date gross DPS amounted to 13.5 sen (implying a payout ratio of more than 100%) following its second interim gross DPS of 10 sen. This high payout ratio does not entirely catch us by surprise as we have highlighted previously such a possibility given its robust balance sheet operating on an asset-light model. Given its sturdy cash pile of RM106.8 million as of 3QFY11, we believe further upside is not unlikely as capital expenditure remains largely manageable at RM15 million to RM20 million per year, hence we bump up our DPS forecast to 17.7 sen for FY11 and 9.5 sen for FY12 at a payout ratio of 180% and 80% respectively.
We make no major changes to our core assumptions for now. Our FY11 and FY12 earnings per share estimates are lowered by 3% and 1% respectively as we tweak our opex structure to account for higher overhead expenses in the belief that the group will likely recruit more lecturers for the commencement of its vocational courses catering for foreign students. In a separate announcement, SEGi mentioned that courses for an initial batch of 600 Vietnamese students will commence in late 4Q11. — OSK Research, Nov 10
This article appeared in The Edge Financial Daily, November 11, 2011.
