Results

• Above expectations – Sasbadi’s 1HFY15 revenue of RM48.4m (+10% yoy) translated into PATAMI of RM10.0m came in above HLIB and consensus’ full year estimates , making up for 63% and 59%, respectively.

Deviations

• 2Q (December to February) earnings are seasonally stronger due to the start of the academic year for national schools in January 2015.

Dividends

• None.

Highlights

• 1HFY15 review… The group achieved revenue of RM48.4m, an increase of 10% yoy, mainly due to the stronger contribution from Sasbadi Sdn Bhd – its educational print publishing arm. 2Q is generally the strongest quarter for the group as the national schools in Malaysia embarks on a new academic year. Its PAT improved 24% yoy, from RM8m in 1HFY14 to RM10m in 1HFY15.

• Also, its newly commenced subsidiary, Sasbadi Learning Solutions S/B, charted revenue of RM1.2m, a level we think is commendable given that it started operations in January 2015.

• 2QFY15 review… A seasonally stronger quarter. Revenue increased 97% qoq. PBT jumped 406% from RM2.3m in 1QFY15 and RM11.5m in 2QFY15

• As for the goods and services tax, all books (except magazines) are zero rated under the latest GST Gazette. Sasbadi’s applied learning and onli ne products are subjected to GST. We believe business should remain as usual as education is a necessity and the incentives from the government would be able to sustain demand from its end users.

Risks

• Not winning the textbook contract from MOE;
• Migration towards the online platform;
• Spike in paper prices; and
• Changes in National Curriculum and educational policies.

Forecasts

• Increase forecast slightly by 4%-5% for FY15-FY16 to take into account higher contribution from print publication and online segment.

Rating

BUY

• We like Sasbadi due to the stability in their business and their long term catalysts based on the new curriculum for secondary schools from 2017 onwards and potential M&As. We are optimistic on its long term earnings growth.

Valuation

• Maintain BUY, with higher target price of RM2.53, based on 15x FY16 EPS or circa 50% discount (unchanged) 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 education exposure which is closely linked to the country’s education system.

Source: Hong Leong Investment Bank Research - 28 Apr 2015