News/  Comments

• Sasbadi announced that it has entered into a share sale agreement (SSA) to acqui re 100% of the issued and paid-up share capital of PMI Education Sdn Bhd (PMI Education), for a purchase price of RM2.6m.

• PMI Education was incorporated in Malaysia on 29th September 2003, and is presently operating a college known as “Mantissa College”. Located in the centre of the prime area in Taman Tun Dr Ismail, Mantissa College offers tertiary education to a talent pool of circa 300 students currently.

• We understand that the acquisition is likely to be funded by cash. With cash of RM25.1m as at 28th February 2015, we believe Sasbadi will have no issue funding the acquisition.

• The acquisition is estimated to complete in the first quarter of FY2016. Hence, we expect any topline contribution should flow through from FY16 onwards.

• We are neutral with positive bias on the acquisition as it bodes well with Sasbadi’s strategy to become a well-known education solution provider. Considering it only has primary, secondary, Form 6 and teachers’ education in its books, the addition of tertiary education should be a plus for the group.

• The financial performance of PMI Education has been relatively erratic, fluctuating between marginal losses and profits over the past 5-6 years. We believe the impact should be minimal to Sasbadi.

• Mantissa College can leverage on Sasbadi’s market presence in the field of education to propel itsel f to be on par if not better than the more established colleges or universities in Malaysia.

• We reckon the group should be able to turnaround the newly added tertiary education business based on its strong reputation and brand awareness as an educational provider among parents & students.

Risks

• Not winning new textbook contract 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 potential M&As and new curriculum for secondary schools; (2) Unique exposure to Malaysia’s education system; and (3) Defensive earnings base.

Negatives

• (1) Not winning new textbook contracts from MOE; (2) Rising paper prices; and (3) Low liquidity.

Valuation

• Maintain BUY with unchanged TP of RM2.72 based on unchanged P/E multiple of 15.5x CY16 EPS or circa 50% discount to average P/E of education sector given its lower market capitalisation and liquidity. We think valuation is justified as Sasbadi has high growth rate and holds a unique exposure to the country’s education system.

Source: Hong Leong Investment Bank Research - 30 Jun 2015