Investment Highlights

• We maintain a HOLD and FV of RM0.90/share on Sasbadi Holdings based on a PE of 22x — on par with its two-year average historical forward PE.

• Recall that we had downgraded the stock on concerns for the group's core business of selling workbooks, following a surprise net loss in its 4Q17.

• Key points from our recent meeting with management:

1) The 4Q loss saw the seasonality factor combine with the absence of certain sources of earnings it had anticipated. The group has been proactive in building new revenue streams as sales in bookstores have been mellow for the past few years due to poor consumer sentiment.

2) It plans to further monetize i-Learn Ace by adding new user functions. We believe the continuous improvement of the product is essential in propelling the size and productivity of its MLM network. Management emphasized it is careful to avoid i-Learn ACE from cannibalizing its printed textbooks by having it offer unique functions and serve a different purpose.

3) The group may pivot to collaborations from M&A, reflecting its already risk-averse approach to new ventures. The group had a target of one M&A move annually in lieu of its maturity and need to go beyond its specialty of academic books. In recent months, it consolidated ownership of an important subsidiary (Sanjung Unggul) and signed several deals to become a distributor (for Chuck Chicken and Marshall Cavendish Education).

• Given the above, we frame the group's priorities for FY18 to be: (1) To realize new revenue streams to prop up the sale of workbooks, especially in seasonally weaker quarters; (2) To see i-Learn Ace capitalising on the ongoing migration from print to digital, by having a successful product and growing network of distributors; (3) To abstain from adding new operational costs (i.e. from M&A) while it fights to recover margins and boost the profitability of certain subsidiaries.

Source: AmInvest Research - 21 Nov 2017