News/  Comments

• Sasbadi announced on the 8th of May that it has secured a contract worth RM406.6k from Ministry of Education (MOE) to publish, print and supply textbooks for subject “Design and Tehcnol ogy” for year 6 Chinese national-type primary schools (SJKC) all over Malaysia.
• The second contract win for the year is for the period from 8th May 2015 to 31st December 2017. The group is set to deliver the fi rst tranche of textbook in the fi rst and second quarter for FY16, amounting to circa RM379.0k.

• Thus, earnings from the second contract will be recognised from FY16 onwards. On average, we expect the textbook contracts should provide gross margins of about 40%-50%.

• Since we initiated Sasbadi, share price has performed tremendously, increasing by 110% YTD. With its long term catalysts (earnings accretive M&As and new curriculum), we are positive on Sasbadi’s long term earni ngs growth and believe there is more upside to its share price performance.

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

• Unchanged. Also introduced FY17 forecasts.

Rating

BUY

Positives

• (1) Long term catalysts from potential M&As and new curriculum for secondary schools; (2) Unique exposure to Malaysia’s education system; and (3) Defensi ve earnings base.

Negatives

• (1) Not winning contracts from MOE; and (2) Rising paper prices.

Valuation

• Maintain BUY with higher fair value of RM2.72 (from RM2.53 previously), based on higher targeted P/E multiple of 15.5x CY16 EPS given its higher market capitalisation, high growth rate as well as the unique exposure to the country’s education system compared to its peers with defensive and growing earnings base. All in all, we are optimistic on Sasbadi’s earni ngs growth due to the stability in their business and potential earnings accretive M&As.

Source: Hong Leong Investment Bank Research - 11 May 2015