News/  Comments

• Sasbadi announced that it has entered into a sale and purchase agreement (SPA) to acquire 70% of the issued and paid-up share capital of Sanjung Unggul Sdn Bhd, for a purchase consideration of RM21.0m. The acquisition is expected to complete by the current financial year (FY15/08).

• The acquisition will be funded via a combination of proceeds raised from IPO and debt. Refer table below. IPO proceeds RM10.5m RM7.0m Borrowings RM3.5m Total RM21.0m

• Based on its latest quarter, the acquisition will increase the group’s gearing from 0.06 times to 0.10 times.

• Sanjung Unggul was incorporated in Malaysia on 22nd August 2001 and has three wholly-owned subsidiaries (1) Big Tree Publications S/B; (2) Jinbang Publication S/B; and (3) Media Distribution S/B. Sanjung Unggul mainly publishes books and educational materials for students in national -type Chinese schools.

• We are positive on the acquisition as the newly captured market segment – national-type Chinese schools would be an added bonus to the group’s business model. Sasbadi should be able to enjoy the positive contribution from Sanjung Unggul by end of FY15 after assuming interest foregone using IPO proceeds and additional interest from debt.

• In addition to the above, the acquisition valuation of 8.4x P/E implies a circa 50% discount to Sasbadi’s current P/E of 19.1x. Thus we deem the acquisition to be value accretive for Sasbadi.

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

• No changes to our forecasts.

Rating

HOLD

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 yet growing earnings base.

Negatives

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

Valuation

• Maintain HOLD 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 - 10 Aug 2015