News

Sasbadi  announced  that  its  wholly-owned  subsidiary, Sasbadi Online Sdn Bhd  (SOSB)  has formed a License  and Services  Agreement  (LSA)  with  PT.  Penerbit  Erlangga (PPE),  from  Indonesia  for  the  usage  of  Sasbadi  interactive online learning  system (i-Learn  Online Learning  System).

A one-off non-refunda ble income of USD300k (equivalent to RM978k)  will be paid by PPE in  FY08/2015.

Highlights

Indonesia’s biggest educational publisher…  Being one of the  first  Indonesian  publishers  to  enter  into  the  educ ation sector,  PPE  has  a  diversified  business  model  offering products  such  as  Indonesian  fiction,  textbooks,  to  handling workshops and trainings.

How  it  will  be  done …  Based  on  a  subscription  business model,  SOSB  will  provide  the  online  platform  for  PPE  to deliver online learning materials to its end-users. During the tenure  of  the  licensing  agreement ,  SOSB  will  receive royalties  on  a  semi -annual  basis  based  on  the  net  sales received  by  PPE.

Expanding  its  footprint…  In  line  with  its  expansion strategy, we are  POSITIVE  on Sasbadi’s latest collaboration with  the  biggest  educ ational  publisher  in  Indonesia  as  it  is able  to  tap  into  the  education  market  in  one  of  the  most populated  country  in  the  world.  As  Sasbadi  online educational  segment  has  passed  the  initial  super  growth stage,  we  believe  that  this  LSA  would  provide  additional growth impetus to the segment .  The  one- off non-refundable income  will  contribute  about  ~5%  to  Sasbadi  bottom  line based on  HLIB’s  FY15 earnings  forecast .

With  its  long  term  catalysts  coming  from  potential  M&As, new  curriculum  for  secondary   schools  from  2017  onwards and its soon to be declared SC  Shariah  position, we remain optimistic on Sasbadi’s earnings  growth  going forward.

Risks

• Losing the textbook tender from  MOE;  Migration towards the online  platform;  Spike  in  paper  prices;  and  Changes  in National  Curriculum  and educational  policies.

Forecasts

• Unchanged.

Rating BUY

• Positives: (1)   Long-term  catalysts  from  M&A  potential  and  new curriculum  for  secondary  schools;  (2)  SC  Shariah compliant;  and  (3)  unique  exposure  to  the  education system.
• Negatives: (1)   Losing  the  contracts  from  MoE ;  and  (2)  Rising  paper prices

Valuation

• Taking into account  projected strong earnings growth of 17 -18%  in  FY15 -16  and  the  above  long  term  catalysts   to sustain double -digit earnings growth from FY17 onwards , we reiterate our  BUY  call with  TP increased by 31% to  RM2.15 from  RM1.65  previously,  based  on  a  higher  P/E  multiple  of 15x (implied PEG of 0.86x)  CY15 EPS or circa 50% discount to average  P/E of the education  sector.

Source: Hong Leong Investment Bank Research - 14 Oct 2014