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.

• Sasbadi’s net profit of RM4.4mil in its 1QFY18 ended Nov 2017 was in line with our projection as it met 26% of our FY forecast and 20% of consensus. The group recovered from a loss in the previous quarter, and grew a decent 3% on a YoY basis.

• For 1QFY18, revenue fell 6% YoY but net profit improved 3% YoY. The weaker revenue was cushioned by a reduction in the cost of sales and administrative expenses. On the whole, margins were intact from gross to net levels.

• Note that from this quarter the group has simplified its segmental breakdown into three business areas, from 10 units: print publishing, digital & network marketing and ALP (applied learning products) & STEM education.

• The 6% YoY drop in revenue came as the flat performance of its core business was paired with the seemingly volatile results of its two remaining segments: digital and network marketing nearly tripled YoY as its direct sales business gains momentum, while the ALP & STEM education unit fell 84% YoY as the previous year was supported by a RM3.9mil contract to supply robotics sets to the MOE.

• The group’s results should come in stronger this second quarter (Dec 2017–Feb2018) as its core business is buoyed by the seasonally higher demand for books, marked by the start of a new school year. Apart from this, we believe it would be a challenge for Sasbadi to strengthen the foundation of its publishing business which still accounts for nearly 90% of revenue.

• The seasonally weaker fourth quarter (Jun–Aug) for its book sales is where defences are most pivotal in order to avoid falling into the red again.

• The group said it is cognizant that retail market conditions could remain weak this year and it is more aggressively developing non-core units and market segments. Management had previously emphasized it is shifting to collaborations from its previous focus of M&A in a bid to save costs and leverage on its publishing expertise.

• We are positive on its proactive stance to find new revenue streams and bring down its fixed costs. However, we emphasize that these new ventures still carry inherent risk and would take time before they become a formidable component of the group’s earnings.

Source: AmInvest Research - 18 Jan 2018