Highlights

• We met Sasbadi on Friday to get more information post FY15 results. We left feeling optimistic on the group’s future growth.

• 4QFY15 review… The lukewarm results were due to higher expenses as the group increased staff headcount for their business expansion. Also, despite being in a recession proof business, earnings were slightly affected due to lower spending power. Note that same time last year, bulk of its revenue came from the sales of new educational material based on PT3. Hence, 4QFY15 showed a normalisation in its earnings.

• Online segment… Launched the new version of iLearn in September. We believe a change in MOE policy with regards to e-learning is needed in order for its digital segment to achieve significant growth.

• Full year contribution in FY16… Apart from M&As, new syllabus and organic growth, FY16 would also be underpinned by full contribution from 70%-owned Sanjung Unggul. Sanjung Unggul currently controls circa 40%-50% of Chinese publisher market share.

• More up side from textbook publi shing… MOE has recently announced several tenders for KSSR and KSSM (the latter is new syllabus for secondary school in 2017). The tendering process should end in mid-2016 with delivery by end of 2016. Thus, earnings shall be recognised from FY17 onwards.

• Rather than dividing the textbook distribution over 3 zones, the winning tender would be able to distribute textbook nationally i.e. winning 1 textbook tender now would be equivalent to 3 textbook tenders previously.

• Catalyst from potential M&As… Over the next 2-3 years, management is looking at acqui ring at least 1 company per annum. The group would be looking at companies with low P/E multiple that can complement its current business model.

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

• Earnings increased marginally by 0.2% - 0.3% based on the deviations stated above and inclusion of Sanjung Unggul.

Rating

BUY

Positives

• : (1) Long term catalysts from potential M&As and new curriculum for secondary schools from 2017; (2) Unique exposure to Malaysia’s education system; and (3) Defensi ve earnings base.

Negatives

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

Valuation

• Maintain BUY with higher TP of RM2.80 based on unchanged P/E multiple of 15.5x CY16 EPS. Our positive rating is premised on Sasbadi’s high growth rate and provides a unique education exposure which is closely linked to the country’s education system. Target P/E is based on 55% discount to the education sector average in view of its relatively small market capitalization and low liquidity.

Source: Hong Leong Investment Bank Research - 3 Nov 2015