• We maintain a BUY on Sasbadi Holdings (Sasbadi) with a FV of RM2.10/share based on an FY18F PE of 24x. We believe the PE of 24x — two notches above its two-year average historical forward PE of 22x — is justified given the strong prospects for earnings. This is on par with the median PE of 24x for regional stocks with publishing and broadcasting activities.

• The group has proposed a 1-for-2 bonus issue. The share capital would grow by 1.5x to 419.1mil shares from 279.4mil shares currently.

• The bonus issue will be capitalised from the group's share premium account at the par value of 25 sen per share.

• As a result, there will be no impact to group shareholder's fund as the reduction in share premium (by RM34.9mil: 25 sen x 139.7mil bonus shares) would be offset by a corresponding increase to its share capital. Consequently, its net gearing will not be affected.

• On the timeline for the exercise, the bonus issue is targeted for completion by end-Sept 2017. As a result, the change in the share base would only be reflected in the group's FY18 ending Aug 2018.

• We are mildly positive on this as it is intended to improve liquidity in the trading of Sasbadi shares. Average daily volume traded in Sasbadi shares for the YTD period has fallen 9% to 0.59mil from the 2016 average of 0.65mil.

• We maintain our FV of RM2.10 with a theoretical ex-bonus issue FV of RM1.40 premised on the same PE multiple, on the wider share base.

• We believe earnings in the next half year and beyond will be anchored to the delivery of delayed book titles from 3QFY17, the ramp-up in sales from i-LEARN Ace (for which its direct selling unit will complete its first year this month), and the steady stream of income from MOE contracts for school textbooks (existing contracts stretch up to end-2019).

Source: AmInvest Research - 21 Jun 2017