This article first appeared in The Edge Malaysia Weekly on February 28, 2022 - March 6, 2022
A top executive of education group SEG International Bhd (SEGi) has quashed speculation of a possible sale of the company in the near term to a Chinese party.
“It isn’t true that SEGi will soon be sold,” he says via a text message, but declines to be quoted.
Talk of the sale to a Chinese group first surfaced in February 2020 but managing director Tan Sri Clement Hii Chii Kok told a news agency then, “There has been some inquiries from interested parties … While we’re open to possibilities, there hasn’t been concrete discussions on this matter at the moment.”
With a student enrolment of 20,000 and six campuses, including one in Sarawak, SEGi is one of the better-known education providers in the country.
Late last year, speculation about the sale surfaced again. There was even talk that the interested buyer was seeking the requisite approvals from Beijing to pursue the acquisition.
But the latest denial by the top management executive has poured cold water on the recent talk.
Meanwhile, Nicholas Bloy, co-managing partner of private equity (PE) group Navis Capital Partners, which is a substantial and the largest shareholder of SEGi, says in an emailed response to The Edge, “We don’t comment on transactions until after the fact under all circumstances.”
Pinnacle Heritage Solutions Sdn Bhd, which is controlled by Navis, has a shareholders’ agreement with Hii and collectively, the two control 69.85% of SEGi. Pinnacle Heritage has a 37.49% stake in the company, while Hii controls 32.36%.
Much of the talk of a new shareholder and a possible sale by existing shareholders could have stemmed from the fact that Navis has invested in SEGi for almost 10 years. According to Navis’ website, it has held the stake since March 2012.
Depending on the investment, most PE funds exit in about five years. Information on Navis’ website shows that its past investments have ranged from three to 12 years. Its investment in Singapore’s Eng Kong Holdings, which was undertaken in June 2010, is its longest held in terms of tenure, followed by its SEGi stake.
It is noteworthy that in India, the PE fund bought into ITM Business School in April 2009 and only exited the education group after 12 years in January 2021.
There is also the question of the pricing. With the pandemic affecting travel and student intake, will potential purchasers be willing to pay a high price for SEGi?
In early April 2012, Navis acquired 27.84% in SEGI from private companies Cerahsar Sdn Bhd and Segmen Entiti Sdn Bhd, the vehicles of Datuk Putit Matzen and Datuk Chee Hong Leong respectively for RM1.71 a share. In the same month, the PE fund and Hii offered to take SEGi private, valuing the company at RM1.14 billion — at RM1.71 a share and RM1.21 a warrant.
The warrants had a strike price of 50 sen and expired in mid-August 2015.
However, Affin Investment Bank advised SEGi shareholders to reject the offer as the offer price was deemed unreasonable and unfair.
In 2017, SEGI had a bonus issue of 515.92 million shares on the basis of five bonus shares for every seven held, which increased its share base considerably to about 1.23 billion shares from 722.28 million shares.
Back-of-the-envelope calculations show that Navis’ entry price of RM1.71 works out to 99.75 sen when adjusted for the bonus issue.
SEGi closed last Thursday at 63.5 sen, translating to a market capitalisation of RM778.4 million.
Inclusive of dividends and payout from a capital repayment excercise in 2017, the returns on Naxis’ investment would be 14.5% based on Thursday’s price.
As at end-September last year, the company’s net asset value per share was 12.19 sen. Since Navis bought into SEGi in 2012, the education group has paid out total dividends of about 44.3 sen per share.
For its nine months ended September 2021, SEGi registered net profits of RM34.77 million from RM166.37 million in revenue. For the corresponding period a year ago, it chalked up net profits of RM30.45 million from RM151.78 million in sales.
On its prospects for 2021, the company says, “The Covid-19 pandemic and the subsequent Movement Control Orders have affected many industries and the higher education sector was no exception. The restrictions in movement and travel have affected the group’s revenue in 2020. During this period, the group has developed relevant new course offerings to meet the current market demand. We have also relooked at our internal processes to streamline operations and automated functions to improve efficiency and customer service. With these new strategies, the group believes that we can overcome the current challenges.”
As at end-September 2021, SEGi had deposits, cash and bank balances of RM118.41 million. Its short-term borrowings amounted to RM32.27 million and it had no long-term debt commitments. SEGi’s finance costs for the nine-month period were only RM5.72 million.
In FY2019, prior to the pandemic, SEGi posted net profits of RM45.13 million from RM243.97 million in revenue, its best performance in the five years from FY2016 to FY2020.
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