Results

• Within expectations: Sasbadi’s revenue of RM21.0m (+5% qoq and 29% yoy) translated into PATAMI of RM2.0m, accounting for 9% and 10% of both ours and consensus estimates.

Deviations

• A seasonally weaker quarter for the group. We expect higher earnings contributions from 2Q, followed by 3Q as students purchase new books for the beginning of the school term.

Dividends

• None.

Highlights

• 1QFY16 yo y review… Sasbadi recorded revenue of RM21.0m, a growth of 29% yoy, whereas its PATAMI grew 23% to RM2.0m thanks to the consolidation of Sanjung Unggul which was competed in the previous quarter.

• Sanjung Unggul, which publishes books and educational materials catering for students of national -type Chinese schools (SJKC), contributed RM5.4m to total revenue. Sasbadi S/B, on the other hand, declined 4% yoy to RM14.7m.

• We look forward to the group’s future earni ngs coming from the new syllabus for secondary school in 2017. Tendering process should end in mid-2016. We believe there will be more opportunities for the curriculum-based textbook segment where competition is milder.

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 pending a meeting with the management for an update post results.

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 - 28 Jan 2016