Highlights

• Sasbadi has entered into a Memorandum of Understanding (MOU) with Southern Publishing and Media Company Limited in China.

• The MOU was signed to explore opportunities and leverage on intellectual property rights, digital teaching and learning resources & technology as well as online teaching and learning platforms for both parties.

• Located in Guangzhou, Southern Publishing is involved in editing, publishing and distributing books, magazines, digital publishing and e-journal among others.

• Currently, Southern Publishing has eight publishing houses which publishes di fferent fields of subjects i.e.: social sciences, literature, children’s publishing, and economic management. Financial Impact

• With limited information available, our earnings will be maintained. Will keep a close watch on this development and make necessary modi fications once financial impact can be identified.

Comments

• We are neutral on this MOU given the lack of information available. Still in early stages of discussion. Nevertheless, we think Sasbadi would be able to leverage on its Chinese educational content both online and offline via the strategic alliance with Southern Publishing.

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

• Maintained.

Rating

• BUY
• We like Sasbadi due to its strong annual FCF, high growth rate, and unique education exposure which is closely linked to the country’s education system.

Valuation

• Maintain BUY with unchanged TP of RM2.80 based on unchanged P/E multiple of 15.5x CY16 EPS. Targeted 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 - 25 Nov 2015