• Sasbadi announced that its wholly-owned subsidiary, Sasbadi Sdn Bhd (SSB) has received a Letter of Acceptance dated 15th April 2015 from Ministry of Education (MOE) to publish, print and supply textbooks for literature component of the subject of B ahas a Malaysia for F orm 5 (“KOMSAS BM Textbook for Form 5”) to national schools throughout Malaysia.

• The RM2.3m contract will commence from 15th April 2015 and end on 31st December 2017, a period of not more than 3 years. Comments

• The positive contribution from the contract will be seen in FY16. Sasbadi is set to deliver the fi rst tranche of KOMSAS BM Textbook in the first quarter of FY16 worth RM1.95m.

• Assuming a gross margin of about 40%-50%, the contract is anticipated to contribute about 2.8%-3.5% to Sasbadi’s FY16 bottomline.

• Sasbadi has been receiving contracts from MOE for more than 30 years. The RM2.3m contract is the first contract received for the year. Due to its strong reputation of delivering high quality education materials to its end users, Sasbadi has built a good relationship with MOE and we believe the group will be able to secure more contracts in the future.

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

• We like Sasbadi due to its strong annual FCF, its decent dividend yield and the uniqueness of the company which is closely linked to the country’s education system with defensive yet growing earnings base.

Valuation

• Maintain BUY with higher target price of RM2.42 (+18% from RM2.06 previously) as we rolled forward our valuation based on 15x FY16 EPS or circa 50% discount to average P/E of education sector due to Sasbadi’s lower market capitalisation and liquidity. We believe the valuation is justified as Sasbadi has a high growth rate and holds a unique exposure which is closely linked to the country’s education system.

Source: Hong Leong Investment Bank Research - 20 Apr 2015