Highlights

Sasbadi is the sole publisher of educational materials for primary and secondary schools in Malaysia based on the National Curriculum with 9% market share in the educational publishing industry.

Sasbadi also publishes and supplies workbooks, revision guides (for both students and teachers) and applied learning products to approximately 1,380 active customers as at FYE 31 August 2013. For the past 4 and a half financial years (FY2010 to Feb 2014), 56m copies of publication has been sold. Revenue grew from RM0.7m in 1986 to RM78m in year 2013.

Competitive strengths: (1) Established brand presence complimented by product diversity; (2) Diversified network distribution; (3) Rapid and persistent response to changes; (4) Managed by experienced leadership team and editorial personnel;

Development of new online materials. Management plans to develop new online educational resources. According to MCMC, broadband penetration rate per 100 households has increased from 31.7% in 2009 to 67.1% in 2013. We believe that Sasbadi’s online publication would gain positive traction from its end-users (normally youth who are generally more technological savvy) and boosts sales.

Business expansion. Sasbadi intends to uphold its position as the main education publisher in the country by widening its product range. It is targeting to utilise RM11.5m from the IPO proceeds to acquire company which produces educational materials based on National-Type Schools (Chinese) and General titles in Bahasa Malaysia and Chinese. The acquisition of office/warehouse building is also funded by the IPO proceeds (RM7m).

Young population, increasing per capita income, higher student enrollment and number of schools as well as rising literacy rate are expected to underpin future growth in the sector.

We expect Sasbadi’s core net profit in FY08/14 to be flattish or a growth of only 2% to RM13.9m (vs. RM13.6m in FY2013). This is caused by higher sales return due to the abolishment of PMR and the expiration of licence with YGMB to publish past year examination papers.

For FY08/15, we forecasted a core net profit growth of 14% to RM15.8 based on our assumption that Sasbadi will renew their licence with YGMB as well as PT3 replacing PMR textbooks and workbooks.

Risks

Losing the textbook tender from Ministry of Education (MoE); Migration towards the online platform; Spike in paper prices; Changes in National Curriculum and educational policies; and Seasonality.

Rating

BUY, TP: RM1.52

We like the uniqueness of the company which is closely linked to the country’s education system with defensive yet growing earnings base.

Valuation

We derived Sasbadi’s target price of RM1.52 based on P/E multiple valuations of 11.5x CY15 EPS, pegged to the average P/E of the education sector of 26x, in which we discounted by 56% due to Sasbadi’s lower market capitalisation.

Source: Hong Leong Investment Bank Research - 14 Jul 2014