Highlights

• Potential textbook contracts. The Ministry of Education (MOE) recently closed the textbook tenders for the relevant subjects of Year 1 of SJKC and SJKT (revised KSSR syllabus), and Form 1 and Form 4 (new KSSM syllabus) in February and early April 2016. We anticipate the results of the winning tenders to be announced in 2 – 3 months, with delivery of textbooks by end of 2016.

• M&As. The group’s pl an to ac quire at least 1 company per annum is on track. After the MoU with Southern Publishing and Media Company in China (MoU extended to 21st May 2016), we believe the next M&A target would be a local publisher that can add value to Sasbadi.

• Print publication. We expect an organic growth of high single digit, to be contributed mainly by Sanjung Unggul. Also, Sasbadi will likely produce circa 1,400 titles compared to previous year of 1300 titles.

• Applied learning centre. The opening of its fi rst learning centre in Kota Damansara will be slightly delayed to 2HCY16. Management is currently reviewing the business model to ensure it will best suit the group. Capex to be spent on the learning centres is approximately RM0.5m.

• 2QFY16. Despite 2Q being the strongest quarter for the group (historically contributed 50% to full year earnings), we believe FY16 earnings might be slightly dampened by the slow consumer and business sentiment (lower spending power).

• As such, we cut our FY16 earnings by 3% to RM20.4m. Nevertheless, we continue to remain upbeat on its FY17 earnings excitement.

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

• Due to slower consumer and business sentiment, we reduce our earnings slightly by 3% for FY16.

Rating

BUY

• We like Sasbadi due to its strong annual FCF, high growth rate, its innovativeness in creating products that cater to tech-savvy youth and unique education exposure which is closely linked to the country’s education system.

Valuation

• We arrive at our TP of RM1.55 based on a higher P/E multiple of 18x CY17 EPS. Targeted P/E is based on lower discount of 40% (from 55%) as we take into account earnings excitement FY17 onwards. Maintain BUY.

Valuation

• is justified i n our view, due to Sasbadi’s relati vely small market capitalisation and low liquidity.

Source: Hong Leong Investment Bank Research - 11 Apr 2016