Investment Highlights

• We maintain a HOLD on Sasbadi Holdings but cut our FV to RM0.55 (from RM0.90) as we lower our PE to 15x from the previous 22x — its two-year average historical forward PE.

• The stock has fallen significantly as its price tumbled 14% in the YTD period and 57% in the past 6 months. It is currently trading at an FY18F PE of 9.7x and FY19F PE of 7.9x, having first slid following the group's surprise 4Q17 net loss.

• Our earnings projections are conservative given the tough conditions for the retail market. We are projecting for an FY18F profit of RM17mil, a mere reversion to its FY16 result.

• Recall that 1Q earnings were flat YoY as growth from its MLM business was offset by flat book sales, and support from a major robotics contract in the previous corresponding period. Margins were intact from gross to net levels.

• The 2Q results should come in stronger given the seasonally higher demand for books, marked by the start of a new school year.

• The group announced on Friday that the Ministry of Education (MOE) had awarded its subsidiaries the following 3 contracts for the supply of textbooks in Year 3 of SJKCs: (1) a RM2.9mil contract to supply the textbook for maths; (2) a RM722K contract to supply the textbook for arts education; and (3) a RM2.9mil contract to supply the textbook for Chinese language.

• The contracts are for a period of 2 years and 9 months from March 2018 to Dec 2020, but they will only contribute to earnings from FY19 as deliveries commence this September. Our FY19-20 projections are slightly raised by 1-4% as a result.

• We believe the group will work in the coming months to rebuild its foundation of selling supplementary school books, while continuing to grow other revenue streams. It recently conveyed plans to monetize i-Learn Ace by adding new user functions, and pivoted to collaborations (to distribute Chuck Chicken and Marshall Cavendish Education products) towards this goal.

• However, we emphasize that these ventures still carry inherent risk and would take time before they become a formidable component of the group's earnings.

Source: AmInvest Research - 12 Mar 2018