Results 

Sasbadi’s  FY14  core  PATAMI  (excluding  RM1.3m  listing expenses ) of RM 13.6m  accounted  for  92% of  HLIB and 91% of streets’ estimates.  Hence, we consider it to be in line.

Highlights 

In  a  separate  announcement,  Sasbadi  announc ed  that  its wholly -owned subsidiary, Sasbadi Sdn Bhd  will be acquiring Penerbitan Multimedia Sdn Bhd (PMSB) at RM1m which will be funded through the proceeds raised from IPO (ac quisition of publishing  businesses).

We  are  favourable  on  the  acquisition  for  this   will  create  a new  revenue  stream  for  Sasbadi  as  it  venture  into  the teacher  education  segment   which  remains  untapped  for Sasbadi.  PMSB  provides  materials  for  teachers’  training schools  on  top  of  educational  comics.  Note  that  this  is  the first acquisition since it was listed in   July.  

4QFY14  review…  Its  QoQ revenue dropped slightly  by 2% from  RM17.9m  to  RM17.5m.  PBT  also  decreased  53%  to RM1.9m  (3QFY14:  RM4.2m)  largely  caused  by  the  listing expenses amounting  to RM1.3m.    

FY14  review…  Sasbadi’s  revenue  of  RM79.5m  is  in  line with  ours  and  cons ensus  estimates  at  97%  and  101% respectively, with it s educational print publishing arm,  being the  main  contributor  of  about  87%  of  total  revenue.  As expected,  the  bulk  of  it  came  from  the  sales  of  new educational  material based on PT3.

Managed  to  report  core  PAT  of  RM 12.3m  despite  an underprovision  of  sales  return  for  past  year  papers  of RM1.3m.

Outlook…  Remain  optimistic  on  its  long  term  earnings growth.  We believe 2015 would be a better year for Sasbadi due  to  the  acquisition  of  PMSB  and  License  and  Services Agreement  with  the  biggest  education  publisher  from Indonesia.

Risks

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

Rating

BUY

We  like  Sasbadi  due  to  the  stability  in  their  business evidently  shown  by  their  positive  operating cash  flows   and net cash position, and their long term catalysts based on the new  curriculum  for  secondary  schools  from  2017  onwards and potential M&As. Maintain BUY.

Valuation

• Reiterate  our  BUY  call  with  TP  unchanged  at  RM2.15, based  on  P/E  multiple valuation of  15x   (implied  PEG  of 0.86x)  CY15  EPS  or  circa  50%  discount  to  average  P/E  of the  education  sector  due  to  Sasbadi’s  lower  market capitalisation.

Source: Hong Leong Investment Bank Research - 30 Oct 2014